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Full text of "Sourcebook: Federal Agency Use Of Alternative Means Of Dispute Resolution"

Administrative Conference 
of the United States 



JUNiitiS^ 



SOURCEBOOK: 
FEDERAL AGENCY 
USE OF 

ALTERNATIVE MEANS OF 
DISPUTE RESOLUTION 



Office of 
the Chairman 
1987 



Administrative Conference of the United States 



The Administrative Conference of the United States was established by statute as an in- 
dependent agency of the federal government in 1964. Its purpose is to promote 
improvements in the efficiency, adequacy and fairness of procedures by which federal 
agencies conduct regulatory programs, administer grants and benefits, and perform related 
governmental functions. 

To this end, the Conference conducts research and issues reports concerning various 
aspects of the administrative process and, when warranted, makes recommendations 
to the President, Congress, particular departments and agencies, and the judiciary 
concerning the need for procedural reforms. Implementation of Conference recommen- 
dations may be accomplished through direct action on the part of the affected agencies 
or legislative changes. 



SOURCEBOOK: FEDERAL AGENCY USE OF 
ALTERNATIVE MEANS OF DISPUTE RESOLUTION 



SOURCEBOOK: 
FEDERAL AGENCY 
USE OF 

ALTERNATIVE MEANS OF 
DISPUTE RESOLUTION 



i 



Prepared for: 

Office of the Chairman 

Administrative Conference of the United States 



by: 

Marguerite S. Millhauser 

Alternative Dispute Resolution Partner 

Steptoe & Johnson 

and 

Charles Pou, Jr. 
Administrative Conference of the United States 

with the assistance of 



Laurie A. Bayles 

and 

Diane M. Stockton 



OFFICE OF THE CHAIRMAN 
ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 



June 1987 



This volume should be cited as Administrative Conference of the U.S., 
Sourcebook: Federal Agency Use of Alternative Means of Dispute Resolution 
(Office of the Chairman, 1987) 



IV 



Chairman's Foreword 

Elected officials and citizens throughout the United States share the concern 
that much litigation is unduly costly in time, money and human resources. While 
the federal government often has been a target of these concerns, it has tried as 
well to respond to them. During the past fifty years--and with varying degrees of 
success--dozens of regulatory reform proposals have been made, and many 
initiatives undertaken, to increase governmental efficiency, fairness and 
effectiveness. Building on the recent interest of the private sector and judiciary in 
the use of alternative means of dispute resolution (ADR), the federal government 
now has another opportunity to move toward those objectives. 

Forty years ago, the legislative compromise embodied in the Administrative 
Procedure Act had administrative law borrow much of its formal processes from 
the judicial model. However, in recent years there has been growing 
dissatisfaction with adversarial procedures which can impose high transaction costs 
on both agencies and the participating public. Such procedures often exacerbate 
conflict and make consensual resolution of disputes more difficult. While agencies 
have sought to provide structured opportunities and incentives for affected 
interests to resolve outstanding issues through negotiation, these efforts have, for 
the most part, been decidedly experimental and tentative. Both agency 
adjudication and rulemaking are ripe for the application of innovative alternatives 
being developed elsewhere for streamlining dispute resolution and encouraging 
settlements. 

In fact, the federal government can, and should, take an active leadership role 
in the ADR area. As party to more controversies than any other entity, the 
government has a special opportunity to assess the viability of ADR opportunities, 
use them aptly, and serve as an example for the rest of our society. It must be 
recognized, however, that the government has unique obligations that may often 
make use of these alternatives difficult, or even inappropriate. 

It is time, therefore, to evaluate ADR's potential for federal agencies and to 
address directly the social, economic, political and procedural problems that are of 
concern. Given the enormous numbers of adjudications and other disputes that 
agencies decide, or are parties to, the successful use of ADR in even a small 
proportion of cases can produce better and fairer decisions, gains in efficiency, 
savings of time and energy, and ultimately foster greater confidence m 
government. By using more consensual approaches to dispute resolution whenever 
possible, the federal government can itself become a model for a constructive 
approach to problem solving. 

The Administrative Conference has already undertaken numerous projects to 
increase understanding and facilitate utilization of ADR, and we will continue to 
build on these efforts to explore ways in which mediation, minitrials, arbitration, 
and related techniques can be employed by federal agencies. We also hope to play 
a major role in publicizing the research already completed and urging agencies to 
make greater use of these techniques. Since the Conference is itself an agency of 
the federal government, it is uniquely situated to accomplish these goals. 

I hope that publication of this sourcebook on federal agency use of alternative 
means of dispute resolution, and its companion volume on negotiated rulemaking, 
will stimulate increased interest and activity in this area. Success will lead both to 
greater government efficiency and greater fairness in the resolution of disputes 
involving the government. 



Marshall J. Breger 
Chairman 



Digitized by tine Internet Arcliive 

in 2010 witli funding from 

Public. Resource. Org and Law.Gov 



http://www.archive.org/details/sourcebook1987unse 



Table of Contents 

Page 

Chainnan*s Foreword v 

Table of Contents vii 

Introduction xiii 

Acknowledgments xv 

1. OVERVIEW OF ALTERNATIVE MEANS OF DISPUTE RESOLUTION 

A. General 3 

Paths to Justice: Major Public Policy Issues of Dispute Resolution, Report of 
the Ad Hoc Panel on Dispute Resolution and Public Policy, National Institute 
for Dispute Resolution (Oct. 1983) 5 

Making Alternative Dispute Resolution Work: A Guide for Practicing Lawyers, 
Endispute, Inc. (1987) 53 

Rich, Alternative Dispute Resolution - Opening Doors to Settlements, Chemical 

Week 28 (Aug. 14, 1985) 71 

Edwards, Alternative Dispute Resolution: Panacea or Anathemal, 99 Harv. L. 

Rev. 668 (1986) 77 

Millhauser, In Choosing ADR, the People, As Well as the Problem, Count, Nat'l. 

L. J. (Apr. 6, 1987), at 15 95 

B. Federal Government 99 

C. Pou, Federal Agency Use of "ADR": The Experience to Date (Jan. 28, 

1987) 101 

Administrative Conference Recommendation 86-3, Agencies' Use of 

Alternative Means of Dispute Resolution, Adopted June 20, 1986, 

1 CFR § 305.86-3 113 

Harter, Dispute Resolution and Administrative Law: The History, Needs, and 

Future of a Complex Relationship, 29 Vill. L. Rev. 1393 (1983-84) 119 

B. Korthals-Altes, The Applicability of Alternative Dispute Resolution 

Techniques to Government Defense Contract Disputes (1986) 147 

Smith, Alternative Means of Dispute Resolution: Practices and Possibilities in 

the Federal Government, Mo. J. of Dispute Resolution 9 (1984) 163 

2. BACKGROUND ON DISPUTE RESOLUTION MECHANISMS 

A. Mediation 179 

Cooley, Arbitration vs. Mediation - Explaining the Differences, 29 Judicature 

623 (1986) 181 

Susskind & Ozawa, Mediated Negotiation in the Public Sector, 27 Am. 

Behavioral Scientist 255 (1986) 189 

Phillips & Piazza, The Role of Mediation in Public Interest Disputes, 34 

Hastings L. J. 1231 (1983) 215 



VU 



Page 

B. Minitrial 229 

Edelman & Carr, The Mini-Trial: An Alternative Dispute Resolution 

Procedure, 42 Arb. J. 7 (1987) 231 

P. Harter, Points on a Continuum: Dispute Resolution Procedures and the 
Administrative Process (report to the Administrative Conference, June 5, 
1986), § 8 - Minitrials 239 

Report of Subcommittee on Alternative Means of Dispute Resolution, American 

Bar Association Section of Litigation/Committee on Corporate Counsel 

(1986) 253 

C. Arbitration 307 

P. Harter, Points on a Continuum: Dispute Resolution Procedures and the 
Administrative Process (report to the Administrative Conference, June 5, 
1986), §§ 3-6 - Administrative Arbitration 309 

Hardy & Cargill, Resolving Government Contract Disputes: Why Not 

Arbitrate?, 34 Fed. B. J. 1 (1975) 351 

Behre, Arbitration: A Permissible or Desirable Method for Resolving Disputes 

Involving Federal Acquisition and Assistance Contracts?, 16 Public Cont. L. 

J. 66 (1986) 371 

Proposed Administrative Conference Recommendation, Assuring the Fairness 

and Acceptability of Arbitration in Federal Programs (May 8, 1987) 403 

D. Other 407 

Dunlop, The Negotiations Alternative in Dispute Resolution, 29 Vill. L. Rev. 

1421 (1983-4) 409 

P. Harter, Points on a Continuum: Dispute Resolution Procedures and the 
Administrative Process (report to the Administrative Conference, June 5, 
1986), § 9 - Settlement Techniques 437 

Menkel-Meadow, For and Against Settlement: Uses and Abuses of the 

Mandatory Settlement Conference, 33 UCLA L. Rev. 485 (1985) 445 

Mode & Siemer, The Litigation Partner and the Settlement Partner, 12 

Litigation 33 (1986) 475 

Lambros, Summary Jury Trials, 13 Litigation 52 (1986) 479 

Susskind, Court- Appointed Masters as Mediators, Negotiation J. 295 (Oct. 

1985) 483 

3. GOVERNMENT ADR POLICEES AND PRACTICES 

A. Survey of Federal Agencies 489 

B. Descriptions of Specific Initiatives 505 

(1) Mediation and ADR Generally 

Information Statement of the Federal Mediation and Conciliation Service 

(Apr. 1987) 507 

J. Barrett, The FMCS Contribution to Nonlabor Dispute Resolution, Monthly 

Lab. Rev. 31 (Aug. 1985) 509 



vm 



Page 

R. Robinson, The Use of Alternative Dispute Resolution in Enforcement Actions 

in the U.S. Environmental Protection Agency (Jan. 21, 1987) 513 

S. Barrett, Mediation and Adjudication: The Double Track Approach, 30 Fed. 

B. News & J. 436 (1983) (examining the experience of the U.S. Dept. of 

Health and Human Services) 527 

J. McKinney, Final Report of the Mediator/Facilitator in the RKO Settlement 

Process (report to the Federal Communications Commission, Feb. 3, 1987) 

including App. I - The Commission's RKO Settlement Proceeding Order & 

App. IV - Transcript of Commission Discussion 531 

Department of the Army, U.S. Army Corps of Engineers, Internal 
Memorandum on Alternative Dispute Resolution Under Agreements for Cost- 
Shared Water Resources Projects 571 

(2) Minitrial 

Johnson, Masri and Oliver, Minitrial Successfully Resolves NASA-TRW 

Dispute, Legal Times 13 (Sept. 6, 1982) 573 

Government Agencies, Courts Using Minitrial Procedures to Resolve Contract 

Disputes, 44 Fed. Cont. Rep. (BNA) 589 (Sept. 23, 1985) 577 

Drop in Minitrials Analyzed at ABA Meeting (excerpt), 46 Fed. Cont. Rep. 

(BNA) 352 (Aug. 25, 1986) 581 

Office of the Inspector General, Department of Defense, Tennessee-Tom 

Bigbee Claim Settlement (report of investigation, July 29, 1986) 583 

Department of the Army, U.S. Army Corps of Engineers, Memorandum on 
Alternative Disputes Resolution Update (Mar. 30, 1987) 587 

Navy to Evaluate its ASBCA Cases for Possible Alternative Disputes Resolution, 

47 Fed. Cont. Rep. (BNA) 341 (Mar. 3, 1987) 589 

Federal Reclamation Bureau Soon to Adopt an ADR Plan, Alternatives to the 

High Cost of Litigation, Vol. 5, no. 2 (Feb. 1987) 591 

(3) Arbitration 

P. Harter, Points on a Continuum: Dispute Resolution Procedures and the 
Administrative Process (report to the Administrative Conference, June 5, 
1986), Appendix II - Case Studies of Administrative Arbitration 593 



(4) Other 



P. Harter, Points on a Continuum: Dispute Resolution Procedures and the 

Administrative Process (report to the Administrative Conference, June 5, 

1986), § 7 & App. Ill - Agency Oversight of Private Dispute Resolution 

Mechanisms 625 

Administrative Conference Recommendation 86-7, Case Management as a 

Tool for Improving Agency Adjudication, Adopted Dec. 5, 1986, 

1 CFR§ 305.86-7 643 

FTC Adopts Mandatory "Fast Track" Rule, Alternatives to the High Cost of 

Litigation vol. 3, no. 11 (Nov. 1985) 647 

Administrative Conference Recommendation 82-2, Resolving Disputes Under 

Federal Grant Programs, Adopted June 17, 1982, 1 CFR § 305.82-2 651 



I 



IX 



Page 

Administrative Conference Recommendation 84-4, Negotiated Cleanup of 

Hazardous Waste Sites Under CERCLA, Adopted June 29, 1984, 

1 CFR§ 305.84-4 655 

Susskind, NIDR's State Office of Mediation Experiment, Negotiation J. 323 

(Oct. 1986) 659 

FORMS AND MODEL ADR PROCEDURES 

A. General 665 

(1) Minitrial 

Model Mini-Trial Agreement for Business Disputes, Alternatives to the High 

Cost of Litigation, vol. 3, no. 5 (May 1985) 667 

Mini-Trial Procedures, American Arbitration Association 671 

(2) Mediation 

CPR Model Procedure for Mediation of Business Disputes, Alternatives to the 

High Cost of Litigation, vol. 4, no. 4 (Mar. 1986) 677 

Commercial Mediation Rules, American Arbitration Association 

(as amended and in effect Feb. 1, 1986) 683 

(3) Arbitration 

Commercial Arbitration Rules, American Arbitration Association (as amended 

and in effect Mar. 1, 1986) 689 

B. Agency Examples 701 

Department of the Army, U.S. Army Corps of Engineers, Circular on 

Alternative Dispute Resolution: Minitrials (Sept. 23, 1985) 703 

Department of the Army, U.S. Army Corps of Engineers, South Atlantic 

Division, Implementation of Alternative Contract Disputes Resolution 

Procedure (May 1986) 721 

U.S. Claims Court, General Order No. 13 and Notice to Counsel on 

Alternative Dispute Resolution Techniques (Apr. 15, 1987) 731 

U.S. Environmental Protection Agency, Guidance on the Use of Alternative 

Dispute Resolution in EPA Enforcement Cases (1987) 737 

U.S. Environmental Protection Agency Memorandum on Alternative Dispute 

Resolution in Enforcement Actions: Actions to Generate Support, 

(Feb. 2, 1987) 809 

U.S. Department of Justice, Office of the Attorney General, Memorandum on 

Department Policy Regarding Consent Decrees and Settlement Agreements 

(Mar. 13, 1986) 813 

U.S. Department of Justice, Office of the Attorney General, Memorandum on 
Department Policy Regarding Special Masters 817 

U.S. Department of Justice, Civil Division, Commercial Litigation Branch, 

Memorandum on Alternative Dispute Resolution- -Mini-trials 

(June 19, 1986) 827 



Page 

U.S. Department of Justice, Office of Legal Policy, Memorandum on 
Department Policy with Respect to Local Court Rules Requiring Mandatory 
Arbitration (Aug. 28, 1985) 841 

Department of the Navy, Alternative Disputes Resolution Program, 

Memorandum from the Secretary and Procedures (Dec. 1986) 847 

Veterans Administration, Memorandum on Instructions for Settlement of 
Contract Disputes After Filing of an Appeal with the VABCA - Role of Trial 
Attorneys (May 1986) 853 

5. IMPLEMENTATION CONSIDERATIONS 

Note, Protecting Confidentiality in Mediation, 98 Harv. L. Rev. 441 (1984) 863 

U.S. Department of Justice, Office of Information and Privacy, Protecting 

Settlement Negotiations, FOIA Update 3 (Fall 1985) 883 

Administrative Conference Recommendation 86-8, Acquiring the Services of 
Neutrals for Alternative Means of Dispute Resolution, Adopted Dec. 5, 1986, 
1 CFR § 305.86-8 885 

G. Ruttinger, Acquiring the Services of Neutrals for Alternative Means of 

Dispute Resolution and Negotiated Rulemaking (report to the Administrative 

Conference, Nov. 19, 1986) including App. F - Agreement for Services of 

Neutral Advisor 891 

H. Bruff, The Constitutionality of Arbitration in Federal Programs (draft 

report to the Administrative Conference), April 26, 1987 961 

Millhauser, The Unspoken Resistance to Alternative Dispute Resolution, 

Negotiation J. 29 (Jan. 1987) 1043 



XI 



Introduction 

This sourcebook has been prepared in connection with the colloquium on 
"Improving Dispute Resolution: Options for the Federal Government," presented 
by the Administrative Conference of the United States and held m Washington, 
D.C. on June 1, 1987. The colloquium is part of an effort to focus attention 
within the government on the possibilities and potential problems of using 
alternative means of dispute resolution in controversies involving the federal 
government. While the federal government has played an important role in 
promoting the use of alternative processes in areas such as labor relations (through 
the Federal Mediation and Conciliation Service), community relations (through the 
Community Relations Service of the U.S. Department of Justice), and consumer 
affairs (through the Federal Trade Commission), its consideration of alternatives in 
matters to which it is a party has been more recent. 

The materials that follow have been compiled to assist government 
representatives to become familiar with various dispute resolution alternatives, 
some of the issues unique to use of ADR by agencies, and the experiences of some 
agencies that have initiated ADR policies or programs. Certain items provide an 
historical perspective on the subject while others reflect recent activity and 
thinking. 

Section I provides an overview of ADR, both generally and in the context of 
the federal government. Section II focuses in more detail on specific dispute 
resolution mechanisms with primary emphasis on mediation, minitrial and 
arbitration. It also includes articles on other approaches including negotiation, 
mandatory settlement conferences, summary jury trials and court-appointed 
masters. Section III describes the various federal agency policies and practices in 
use at this time. Section IV collects forms and procedures that have been, or can 
be, used to implement ADR in specific cases as well as on an agency-wide basis. 
It includes materials developed by private groups as well as by several federal 
agencies. Section V presents articles that consider some of the issues that arise in 
agency implementation, such as acquisition of the services of neutrals, the need for 
confidentiality and the potential for resistance on the part of participants. 

There exists substantial additional literature on ADR and a broad range of 
organizations and individuals knowledgeable in the field. Persons desiring more 
information may contact the Administrative Conference of the United States, 
Office of the Chairman. 



XUl 



Acknowledgments 



We would like to thank those agencies whose generous financial support 
enabled the Conference to publish this sourcebook. These include the 
Department of Justice, Department of Health and Human Services, 
Environmental I'rotection Agency, Equal Employment Opportunity 
Commission, Federal Communications Commission, Federal Energy Regulatory 
Commission, General Services Administration and the TRW Foundation. 



Office of the Chairman 
Administrative Conference 
of the United States 



XV 



SOURCEBOOK: FEDERAL AGENCY USE OF 
ALTERNATIVE MEANS OF DISPUTE RESOLUTION 



OVERVIEW OF ALTERNATIVE MEANS OF DISPUTE RESOLUTION 
A. General 



PATOS TO JUSTICE: 
M^JCR PUBLIC POLICY ISSUES OF DISPLTIE RESOUTTION 



Report of the Ad Hoc Panel on 
Dispute Resolution and Public Policy 



Prepared by the 
Naticanal Institute for Dispute Resolution 



October 1983 



Support for this project was provided by the Federal Justice Research 
Program throu^ Grant No. 83-NI-AX-0002 to the National Institute for 
Dispute Resolution. Points of view or opinions expressed in this 
document are those of the Panel and Steering Cannittee vorking en this 
project and do not necessarily represent the official position of the 
U.S. Department of Justice or the National Institute for Dispute 
Resoluticn. 



TABLE OF OOOTtl/rS 

I^3TR0Duc7^IC^I i 

CREfvTiavI CF TliE PWEL 3 

DEFINING DISPUTE RESOLLmCN 4 

DISPUTE RESOLUTION AND HE U.S. U^GAL SYSTEM 7 

CH00SIN3 AMO^C DISPUTE RESOLUTICN OPTIONS 8 

Advantages and Disadvantages of the Courts 9 

Advantages and Disadvantages of Other Forms 

of Dispute Resolution 12 

Dispi/n: RESOLLrriCM principles 16 

INSTITVmOMALIZnrc DISPITTE RESOLUTION METHODS 16 

Funding and Incentives for Alternatives 19 

Dispute Resolution and the Legal Profession 20 

Relationship of Alternatives to the Courts 22 

Alternatives and the Public 23 

FLTRJRE DIRECTIONS 24 

APPENDICES 29 

Appendix 1: Tables 30 

Appendix 2: Lexicon 36 

Appendix 3: Further Readings and Resources 39 



nTTRODUCTiaJ 

Society cannot ard should not rely exclusively a. the courts for the 
resolution of disputes. Other nechar.isr^s r-ay be srjpeiicr in a -.-.iriety c: 
controversies. They nay be less expensive, faster, les.. intirridatinc, rcre 
sensitive to disputants' concerns, and rcre responsive to v-nderlying prcble.TS. 
They rnay dispense better justice, result in less alienation, produce a feeling 
that a dispute -^-as actually heard, and fulfill a need to retain control by not 
handing the dispute over to las^yers, judges, and the intricacies of the legal 
systa- . 

This perspective is evident in the grcvylng interest m dispute resolution 
at nany levels in the public and priv:"e sectors of society. Dispute resolution 
has been th.e s'ubject of cover page articles in prorir.ent newspapers and r.ational 
magazines. Chief Justice Warren E.- Burger has repeatedly called for a 
"comprehensive review of the whole s^ubje-ct of alternatives to courts" for 
settling disagreerents. Harvard University President Dera-; C. Bok describes the 
Anerican legal syste.Ti as flawed and calls for a hard look at reform. 

Attorney General William French Snith and Griffin Bell, Ms predecessor, 
advocate exploring methods other than litigation to settle differences . State 
and federal courts are implementing a wide range of alternatives to 
adjudication. An increasing number of jurisdictions have established 
court-annexed dispute resolution programs in which cases are referred to 
rrediaticn or non-binding arbitration before they are tried. Other courts £ire 
experimenting with innovative ways to facilitate settlement. 

The Administrative Conference of the United States reocrmends testing the 
use of negotiations as a way of improving the rulemaking process and developing 
better rules. Sane federal and state agencies are trying ne-^v procedui-os to 



10 



reduce massive backlogs of pending ccrplaints and appeals as well as to inprove 
policy development generally. 

Legislatures, too, have demonstrated interest in alternative dispute 
resolution techniques. Congress passed the Dispute Resolution Act in 1980 to 
encourage the developtnent of methods for resolving civil and criminal disputes 
without litigation and to create a dispute resolution clearinghouse. As yet, no 
funds 1-ave been appropriated to implement the Act. A number of states have 
enacted dispute resolution legislation and, in seme instances, established 
statewide dispute resolution programs. 

There are also significant private sector initiatives which provide for the 
resolution of consumer ccrplaints, small ccmriercial disputes, insurance claims, 
and conflicts between businesses by such means as mini-trials, "rent-a- judge" 
and the increased use of arbitration and mediation. Grievance procedures witMn 
institutions, such as hospitals, universities, prisons, and schools, have been 
created. Orrbudsmen, media action lines, medical malpractice screening panels, 
and divorce mediation are other examples of alternative dispute resolution 
approaches which are receiving more attention. 

In the first half of 1983 alone, major national conferences were conducted 
en peacemaking and conflict resolution, family dispute resolution, environmental 
dispute resolution, cuid consumer dispute resolution. The American Bar 
Association, through its Special Ccnraittee on Dispute Resolution, has encouraged 
the developnent of neighborhood justice centers — now totalling more than 200 
across the nation — and currently is working to establish several "multi-door 
courthouses." The American Arbitration Association has expanded its activities 
to include conflict resolution, training, and technical assist^^nce in a broad 
range of ^eas. The Society of Professionals in Dispute ResolutJ.on has 
similarly qrcMn to reflect diversification in the field. 



11 



-3- 



Mediation is being used to address ocrplex, multi-party controversies arid 
to develop consensus positions on difficult policy issues. Applications include 
intergoverniTiental disputes and issues involving the environment, land and 
natural resources, Indian claims, civil rights, corrections, and carmunity 
conflicts. 

But, just as alternative dispute resolution inechanisms offer great premise, 
they also raise many questions and create their cwn problems. Just what are the 
respective roles of courts and the various alternatives? How should they relate 
to one another? How should it be determined which dispute resolution mechanism 
is mDst appropriate in a particular case? Do alternatives really save time or 
money? Hew should they be financed? Hcv? should settlements be enforced? Are 
alternatives to the courts "second-class justice"? What are the standards by 
whicii dispute resolution mechanisms should be evaluated? 

CREATION OF 1HE PANEL 

In early 1983, the National Institute for Dispute Resolution convened the 
Ad Hoc Panel en Dispute Resolution and Public Policy under the sponsorship of 
the U. S. Department of Justice. The Institute assembled this groip of 
prominent citizens to identify public policy issues associated with the ways 
Americans settle their disputes and to suggest strategies for furthering public 
knowledge about dispute resolution. 

This was an inquiry, not by dispute resolution practitioners or court 
reform experts, but by members of the general public fron their perspective as 
potential disputants, as citizens, and as taxpayers. Individuals on the Panel 
were chosen for their first-hand kncwledgo anl demonstrated leadership in a 
diversity of areas: labor, business, healtli, education, welfare, civil rights, 



12 



-4- 



hDusing, consumer affairs, the media, federal regulation, public and judicial 
administration. Sane represent the interests of particular populations: the 
poor, wanei, blacks, hispanics, the elderly. Members serv€3d as individuals, not 
as representatives of any organization. They were invited to raise — not 
resolve — issues . 

A Steering Cannittee was responsible for directing the uork of tl\e Panel, 
including assembling its members, preparing discussion papers for its 
consideration, and drafting this report. What follows are highlights of the 
discussions of the Ad Hoc Panel on Dispute Resolution and Public Policy as they 
occurred during three one-day meetings in Washington, DC. 

DEFINING DISPUTE RESOU/TION 

The Panel defined the scope of its inquiry to include all methods, 
practices, and techniques, formal and informal, within and outside the courts, 
that are used to resolve disputes. Although the term "dispute resolution" cind 
the frequea-ytly used phrase "alternative dispute resolution" have cone to suggest 
ways of settling disputes without going to trial, the Panel included litigation 
among dispute resolution options to be considered. Because the traditional 
system and the so-called alternative systems are inextricably bound, the Panel 
explored then as one. Table 2 in Appendix 1 represents different ways of 
conceptualizing the range of dispute resolution methods. 

Dispute resolution techniques can be arrayed along on a continuum ranging 
frcn the most rulebound and coercive to the most informal. Specific techniques 
differ in many significant ways, including: 

• vshether participation is voluntary; 

• whether parties represent themselves or are represented by 
counsel ; 



13 



• w^eil'.^ decis.r'3 ar= r^oe t-y the dispctar.is or tr. a t>.iri party; 

• vshetl-.er tr.e proceiure e-.ployec is fcr— al cr ir.forr-^^ ; 

• w'-,sther the b^sis for the cecisior. is l=w or sore other 
criteria; arrl 

At ore eni cf the ccr.-.—.^- is a^r^cir^tior. (incluiinc bcth. :uoicia: ar.i 
=.^ — i=-_r£tive hearincs": carries cas. be oorpellec to participate; t:-.ey are 
usually represa-.teu ry counsel; th.e -^tter folio-.- specif leo procei-re; the case 

f^:-^, proceeds ur.ier -ere rela.xed r-le=, ar.d ray 'oe bmumc cr ncr.- --ir-.dir.g . 

At tl-^e otl-.er enz of the contir/uur. are neaotiatior-S iri 'which, disputants 
represent ana arran.ge settlements for tl-.a-^elves : j^'ticipetion is v-ol-n.tar^', 
and t>e disputan.ts deter-une the process to "ce er^loyed and criteria for rcl^mg 
th.e decision. Screv^here Ln the ruddle of the contmuur is nediaticn , in. v.h.ich 
an i-.par^ial party facilitates an exo'nange arcng disputar.ts, suggests possible 
solutions, and other\^se assists the parties ir, reaching a ^lur.tar>- agreement. 
Optior.s anorq these alternatives ray be ccrbmed in. vario'us v.-ays, including v.*-3t 
is }cTOv.n as ne-d-arb. Tne terr-s used above and othiers , like conciliation , 
o-b-jdsran, ard rani-trial , are defined nore fully in the lexicon in Appendix 2. 

^tost forms of dispute resolution Veve bean in use for years. TV^at they are 
rtv- being characterized as innovative reflects the extent to \*hid'. they are 
being institutionalized and applied ir, new situations, and thie increased level 
of expectaticn being attached to ther. 

The wide bo.ur;d.aries that the Panel set for its discussior^ of dispute 
resoluticr. include: 

—.All disputes w^ach oould go to civil oourt, Lncluding disputes between 
individuals such as those which occur within farilies, arong acquaintances, and 



14 



LP. r.eighlxDrhoods; disp-Jtes anong organizations and instituticr^, for instance, 
between citizen groups and corpcraticr.s or govemnents; and disputes pitting 
individuals against institutions, such as against corporatiorj or a go%-em-vental 
agency. 

— f-latters subject to cri.-ir^l law, especially those ocnflicts within a 
far-JLly or r.eic-±cr><xd tl-.st cculd ce heard in civil forurs and defusad before it 
IS necessary to inv-olve th.e police and cc'urts; disputes th-at end up in criruxial 
oourt because one or all sides lack the infcrration, influence, or funds to 
pursue a civil ref-ecy; ar.d disputes w*-i.ch are a cri.-a_nal ratter in cr.e 
j'Urisdicticr. b'ut a civil -atter scne-^here else. 

— Disputes heard by adr-u_r-istrative agencies, for instance those related to 
the develccrrent and irple-entaticr of govemnental regulations; the allocatJ^ 
of federal, state, and local reso'urces; ar«d a broad range of (ccnplaints and 
grievances such as the tens of thousands of cases involvLng Social Security, 
veterans' benefits, b^ack lung payments, ar.d other federal ccrpensation 
prograr^s . 

— Disputes that are now left urjresolved for the lack of a suitable forun. 
Perhaps one party is mtinidated by the forura which is available, lacks the 
funds for access to it, or has little confidence in it . In other instances, no 
single forum can, or will, address the kind of dispute presented (for example, a 
hcr.eowner's objection to little league baseball games on the church lot across 
the street). Unresolved, th.ese disputes r^y fester, causing social antagonisms 
and escalation of a rinor controversy into a rajor problem. 

— Disputes that could be prevented or limited. A significant number of 
actions to define and challenge legislation and regulations could be avoided if 
interested parties were more involved in their developnent and the disputes that 
new programs night engender 'A«ere anticipated. Similarly, thiere are corplex 



15 



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sorial issjes (involving school desegregation, environneritdl concerns, 
allocation of p-.:blic reso'jrces) thct ir.ight be better addressed through 
r--lt_:-party paxticipaticr m the forr:,^latior. of pclicy ratlner thar. throjg:: later 
co_rt ch.cllenge. 

Lastly, th.e Par.el recog-iizec t^nat sere conflict contributes to and, Lndeed, 
is essential to a healthy, fur.ctioninc society. Social change occ^s tl'irougi^i 
disputes and oontrcversy. Sor.e cbsei^yers attribute thie long-terr stability of 
the co'untry to its ability to hear arx5 reconcile the disagreenents of its 
diverse population. TV.us, ore sr.ould focus not only or. avoiding disputes, but 
also cr. fi.-vdinc suitable ways of hearing and resolving those that inevitably 



DISFVTE FESOLLfTICN AND TOE U.S. I£GAL SYSTEM 

Many experts within the legal establishment are joined by lay critics in 
believing that the co'untry is suffering frcn "too rany laws, too nany la\v^uits, 
too rany legal entang ler^ents , and too nany lawyers." Contrary to popular 
belief, hovv^ver, the problem, does not seer, to be excessive litigation. Although 
there has beai a rapid growth in the number of cases filed, only 5-10 percent of 
filings actually go to trial. The number of cases litigated does not appear to 
be increasing at a rate faster than the population is grc^.'ing. This increase is 
rather modest in a ooantry that is experiencing as much social and technological 
change as is the United States. 

So the issue is not so mLx:h cne of caseload as "of ocmplexity, prohibitive 
cost, and delay in using the courts. In fact, the United States has the largest 
bar and the highest rate of lawyers per capita of any country in the \%orld — the 
number having more than doubled since 1960, to more than 612,000. And yet, it 



16 



-8- 



has been estimated that 1 percent of the U.S. populaticn receives 95 percent of 
the legal services provided. As Derek Bok points oct, "the elaborateness of our 
laws ard ccrplexity of our procedures. . .raise the cost and delay of legal 
services such that countless poor and middle class victirs (riust) accept 
inadequate settla-sents or give up any atter:pt to vindicate their legal rights." 

This is a situation v-lth i.-portant irplications . Not only is the largest 
se<^ent of O'ur populaticn precluded fron real access to the justice s^'ster-:, the 
biggest -users of legal services — corporations and v,ealthy individuals — pay an 
enorTX;-us price. Legal expendifures are growing at a rata faster th.an increases 
in the gross rational product. Productivity is affected by th.e dram en tir:>e 
and noney available for other endeavors. 

Enthusiasm for a wider range of dispute resolution options is tied, then, 
to a hope that new rethods will not only reduce the burden cri the co'urts and the 
econcry, but will provide nore satisf\'ing neans to justice for a larger portion 
of the populaticn. In fact, the search fcr new w3ys of managing our differences 
can be seen as sigraling a sJ-.ift in public values. With increasing awareness 
that "we are all in this world together," traditional win- lose, adversarial 
processes .Tay be personally and socially less satisfactory than nore 
participative, collaborative problen solving th.at reconciles the interests of 
all involved parties. 

It wBs within this larger social context that the Panel exar^ined dispute 
resolution options. 

CHOOSCJG AMONG DISPl/TE RESC'Ii/TION OPTIONS 

Vo one appr:^c±\ is best for resolving all disputes. Tr.e nat'ure of th.e 
disr^^te and tiae discutants will, in large ncasure, z^',ev"ir.e which disp-te 



17 



resolJticn method is nost appropriate. Among t-he characteristics that night 
s-jgcest cne approach c^'er another cLre u^ethier the relationship a'nong disputants 
IS of a contin'jing nature, the disputants' financial circj-stances, their desire 
for privacy and control of the dispute resolution process, and th.e urgency of 
resolving the dispute. 

Crie rust be war>' of ascribing particular attrib'utes to cne or another 
r.ethod of dispute resolution, however. Litigation is not alwa-jS final, although 
that is a cci. i only perceived benefit; rediation may not enable parties to vcrk 
together in the future, as is often suggested; arbitration nay not alv^ays be 
less expensive than pursuing a case xti court. And all dispute resolution 
nethods ray have unanticipated consequences that raXe ther. rcre or less 
desirable in particular Lnstances . 

With th^t caveat, the Panel revie-^red the advantages and disadvantages of 
three rejcr kinds of dispute resoluticr. nethods: litigation, arbitration, and 
nediation. Readers ray v.dsli to refer to Tables 3, 4, arid 5 ii^: Appendix 1. 

Advantages and Disadvantages of the Courts 

The concern axpress&d repeatedly by the Panel is that co'orts are sinply too 
expensive and too tine consupung. Although the govemnent s'ubsidizes rany of 
the oosts of ranning the courts ih;eir fjll use requires expensive lawyers and 
the tine of the disputants. Tr.is neans that co'urts are generally inaccessible 
to all but the nost wealthy parties. Hence, the co'urts tend to be the province 
of large organizations and conccritantly the ten-year" anti-tr-jst case cons'ures a 
disproportionate share of j'udicial resources. Thus, although courts are vitally 
inportant for protecting private rights and concerns, the delay and costs nay 
render t2-.er ineffective in disc"'-iarging this critical dr.y. 



18 



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Because of the relatively struct'ored approach courts use, the range of 
rer.edies available to the court may be qaite limited. Indeed, lawyers may have 
to refrane the issues separating the parties to fit a particular legal doctrine 
and, thus, nay change the nature of the dispute. As a result, the court is 
often not able to address the real issues and tailor an appropriate remedy. 

Courts largely rely en a for-al adversarial process that may further 
antagonize the disputLng parties. Thus, a judicial approach may not be the 
preferred forun for settling disputes in vhich the parties will continue to have 
a close '*Jcz'<lr.g or livLng relationshap . Purther, because the process is also 
sa-ewhat nv-stifying to many layr.a^, tr.ey may beccne estranged fron the court. 

Scr-e disputes require a technical expertise for their resolution and, since 
judges are necessarily general ists, courts rray be inappropriate for scne 
ocntroversies. In others, even thou^ j-jcges could be educated sufficiently to 
make the decision, that may net be an efficient use of reso'orces. Moreover, the 
existing expertise of the parties is generally not tapped in shaping a 
resolution because of the W3y roles are defined. Table 1 in AppendLx s'jrrarizes 
scne problems with using the co-urts . 

These ooncems notwithstanding, courts continue to provide indispensible 
services to society. They are the appropriate forum when the purpose is to 
establish a societal norm or legal precedent. Thus, for example, if the 
underlying cause of a dispute is net a disagreement over hcv/ to apply an 
accepted norm but rather a need to create such a principle, then couits — or t}ie 
legislature — are the appropriate forum. Groups and individuals who lack 
eccncruc pc^r or social status are likely to need the courts to protect their 
rights and preserve their leverage in dealing with others. 

CcKirts are also th.e preferred met:nod of establislung a record of sor.ething 
that h^.ppep.ed in the past. If the resolution of a dispute turns on 



19 



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reconstructing the facts — or at least en developing an authoritative version of 
the facts — then coui-ts best serve that fuiiction. They also provide the official 
recognition and basis for enforcement which society dejiiai-ds in the resolution of 
seme disputes, such as divorce and bankruptcy, for exanple. 

Sane cases get to court not because they have these characteristics that 
ccmend them for judicial resolution, but because of the exigencies of the 
situation. Seme issues are sufficiently controversial that at least one of the 
disputants does not want to take the responsibility for voluntarily 
participating in its resolution. Instead, the dispute will be sutmitted to 
ad:}udication to deflect responsibility for the eventual, possibly unpopular, 
decision. School desegregation and other sensitive cases involving elected 
officials often fall into this category. Another exairple is the corporate 
dispute where the stakes are too high for a middle level officer to take 
responsibility for losing and, hence, the matter is sutmitted to a court to 
neutralize responsibility. Courts are also used sometimes when one party wants 
to delay a decision for as long as possible. 

Most cases that are filed do not go all the way to judicial resolution. 
Nevertheless, filing a lawsuit nay serve imtportant functions and be a necessary 
prelude to using other methods for resolving disputes. It crystallizes the 
issues and provides the disputants with ways of ocmpelling participation, 
procedures for sharing information, motivation for taking action, and deadlines 
for doing so. Thus, n^ny cases are resolved through 'Taargaining in the shade^/ 
of the law." 

In fact, courts themselves engage in a variety of dispute resolution 
techniques. Judges and other court officials attempt to prcrote pretrial 
settlements in virtually every case that comes before them. A judge v^^o tries 
to bring parties together for a settlement is engaging in a form of mediation. 



20 



•12- 



Sometimes, to avoid any bias, this is done by a magistrate or a judge other than 
the one who would preside should the case nwve to trial. Here, the judge may 
push very hard for settlement short of trial, and the parties may accede for 
fear of alienating the decisionmaker. This kind of judicial mediation should be 
distinguished from the purer and less interventionist forms discussed later. 

Courts also use special masters and referees as fact-finders, whose 
findings then are used to help parties reach settlements. An increasing number 
of jurisdictions have court-annexed mediation and arbitration programs for 
special categories of disputes. Unaided negotiations between counsel for the 
parties are also comnon. 

Indeed, only a small minority, roughly 5-10 percent, of the cases filed 
actually go to trial. Ttie remainder are resolved before trial — some by 
abandonment, some by judicial ruling, and the majority by settlement between the 
parties. Those that do reach a decision become "public goods" that establish 
the standards against which future cases are negotiated or activities governed. 
To an extent, however, this norm-setting might be enhanced with even less 
litigation if settlements were also published; alternately, some argue that 
settlements might be inhibited by publishing. 

Advantages and Disadvantages of Other Forms of Dispute Resolution 

Arbitration and mediation are the two most widely known nonlitigative 
methods of dispute resolution. Arbitration, widely accepted and used in labor 
and management grievances and in some commercial settings, has special 
advantages over the courts, among them: 

— It can be initiated without long delays; the procedure is relatively 
short; and a decision can be reached promptly. 



21 



-13- 



— Relaxed rules of evidence enhaDce flexibility and the process is rrore 
streamlined than a judicial proceeding. 

— The parties nay select the applicable norms — that is, they can specify a 
particular body of law as a. basis for a decisicn that might not be relevant in a 
court setting. 

— The parties are able to choose the arbitrator. 

— The arbitrator can be required to have expertise in the subject matter of 
the dispute. 

— The resolution can be tailored to the circumstances. 

— The dispute can be kept private since the decision is not necessarily a 
public document, as it would be in a court proceeding. 

— Arbitration may be less expensive than going to trial. 

— An arbitrator's decision is final and may be binding on the parties. 

— The a\%rard in binding arbitration usually is enforceable by a court with 
little or no review. 

In sum, with arbitraticMi, decisicxis can be reached with relative speed and 
finality. Arbitration has proved especially valuable to parties that have a 
large nuirber of disputes Vihich must be resolved during the course of a 
contractual relationship. Labor-management and contractor-subcontractor 
relationships are exarrples. 

But the efficiency of arbitration sometimes nay be achieved at the expense 
of the "quality of justice" in an individual decisicn. In ccrrDercial and labor 
cases, vhere there is a high volume of cases with fairly low stakes, trade-offs 
between an expeditious, inexpensive arbitration process and the assurance of a 
mDre studied decision in each case nay be acceptable . In other types of 
disputes, parties may not agree to arbitration because they want the protection 
offered by the oourts, or they want to maintain control over a settlement 



22 



•14- 



throu^ a process of negotiation. Thus, for exanple, a party nay be more 
willing to use arbitration to determine the anount in oontroversy than initially 
to establish liability. 

Further, arbitration has become so formalized in labor relations that it 
has developed scne of the problems of procedure and delay present in judicial 
process. It should be noted, too, that an arbitration hearing may be more 
expensive and time consuming than the negotiated settlement which might 
otherwise have occurred. 

Mediation is a valuable approach to the rmny disputes that are better 
settled through negotiation than adjudication. Among the benefits of mediation: 

— It may provide an opportunity to deal with underlying issues in a 
dispute. 

— It nay build srcong disputants a sense of accepting and owning their 
eventual settlement. 

— It has a tendency to mitigate tensions and build understanding and trust 
among disputants, ther^Dy avoiding the bitterness which may follow adjudication. 

— It may provide a basis by vshich parties negotiate their own dispute 
settlements in the future. 

— It is usually less expensive than other processes. 

But mediation, too, has potential shortcomings. It can be time consuming, 
lack an enforcement mechanism when done outside the courts (although agreements 
may be enforceable as contracts), and depend en the voluntary participation of 
all parties to a dispute and their willingness to negotiate in good faith. It 
does not always result in an agreement and, therefore, the resolution of a 
dispute . 

It also raises a series of considerations related to the role of the 
mediator. In general, mediation works best when the parties have a rough parity 



23 



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of power, resources, and information. But, v^at is the responsibility of the 
mediator if there is a significant pCMer imbalance anong parties or if one party 
is aninform€3d or misinformed about the law or facts needed to make a sound 
decision? Should the mediator, or anyone else, have the responsiblity to neke 
certain an agreement has a principled basis and is not reached out of ignorance 
or fear? Should a ncxiiator refuse to take part in resolvLng a dispute if one or 
another party may be hurt in the process or have their confidences disclosed? 
What are the oonsoquences if the mediator becomes interventionist and is not 
perceived as impartial? In sum, ass'uming they can be defined, how are the 
ethics of the mediator ass-ored? And, v^at is the appropriate role for the 
la-wyer who-i a client is attempting to reacti a mediated settlement? 

Beyond the specifics of arbitration and mediation, there are general 
concerns about nonjudicial methods of dispute resolution. These methods, which 
might reach settlements without the use of lawyers or counselors, may lead 
disputants to make choices they would avoid if they were better informed. This 
is an area of particular concern related to wonen, the poor, the elderly, 
persons for v^an English is a second language, and other classes of disputants 
v*io are traditionally less pcv^rful or less skilled at negotiation than their 
opponents. Further, ncailitigative methods may merely give the aji^iearance of 
resolving sone disputes v^ile avoiding a finding of more extensive liability or 
leaving fundamental issues unsettled (e.g., an individual settlement in a 
products liability case vhile the oompany keeps nanufacturing the defective part 
or cin individual settlement of a discrimination complaint while the organization 
continues the prohibited practice). 

MDnlitigative methods usually carry with them no element of coercion to 
force participation in settling a dispute, so they rnay not be practical for a 
large category of disputes. TVii s is particularly so for tlie disenfrancliised 



24 



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trying to pursue disjxites with the government, because government agencies may 
r»t agree to a voluntary process. Further, settlements reached through 
nonlitigative methods of dispute resolution may lack enforceability. 

It should also be noted that efforts to settle disputes nay not be 
productive if the parties have not sufficiently narrowed the issues, developed 
the facts, and ooncluded that ccmprcruse is in their best interests. Disputes 
soDehow must be ripe for resoluticn before they can be settled satisfactorily. 
Table 3 in Appendix 1 notes these and other potential problems in using 
nonlitigative methods. 

DISPUTE RESCiJLTnON PRINCIPLES 

Conpariscn of various methods of dispute resoluticn raises ccnplex issues. 
More empirical information is needed before any definite statements can be rrede 
about the appropriateness of one method over cinother in a particular kind of 
dispute. The Panel was able to conclude, however, that there are a number of 
major criteria by which a dispute resolution mechanism can be judged: 

1. It rnust be accessible to disputants. TTiis means that the forum 
for resolution should be affordable to disputants as well as 
accessible in terms of physical location and hours of operation. 
Parties should be ccmfortable in the fonm and feel that it is 
responsive to their interests. 

2. It must protect the rights of disputants. In cases where there is 
a parity of resources, influence, and knowledge, this may not be a 
concern. But vshere one party is at a disadvantage, his or her 
rights may be jeopardized by choice of the forum. For instance, 
the poorer litigant may not be able to afford full discovery, 
expert witnesses, etc. Similarly, without counsel in a mediation, 
a party imy tmnecessarily forfeit rights. 

3. It should be efficient in terms of cost and time and, so, may have 
to be tailored to the nature of the dispute. Time is very 
important in many instances, and the fonm for settlement should 
respond to diis imperative . For example, it is obviously vital to 
the elderly that their disputes be settled quickly. Some 
disjxjtos, esfjecially tJiose involving highly charged tmotional 



25 



-17- 



issues, nay take scne tiine to settle; factual disputes rrey be more 
amenable to expeditious handling. 

4. It most be fair and just to the parties to the dispute, to the 
nature of the dispute, and when measured against society's 
expectations of justice. 

5. It should assure finality and enforceability of decision. 

AlthDugh the mechanisn itself can discourage appeals, it may be 
the disputants' belief that the process was fair that will be the 
principal ccmponent of finality. In coercive situations, due 
process concerns will require that there are proceedings for 
review of decisions. 

6. It nust be credible. The parties, their lawyers, and other 
representatives must recognize the forun as part of a legitimate 
system of justice. People who practice the alternatives, 
especially as judicial adjuncts, must be ccrnpetent, well-trained, 
and responsible. Society, too, must have faith in the alternative 
and recognize its legitimacy. 

7. It should give expression to the oomunity ' s sense of justice 
through the creation and dissemination of norms and guidelines so 
that other disputes are prevented, violators deterred, auid 
disputants encouraged to reach resolution on their own. 

The Panel recognized that it is unlikely that any dispute resolution 

mechanism will be equally strong in all of the seven criteria. Rather, choices 

will have to be made concerning v^ich qualities are the most essential with 

respect to particular kinds of disputes. It is throu^ this process of 

decisionmaking and monitoring outcomes that some assessment can be made of the 

real inplications of various forms of dispute resolution. For instance, cxie 

could argue that mediation is a better approach to resolving property and 

custody issues in a divorce because of the interest in facilitating a workable 

Icaig-term relaticHiship; however, some fear that without counsel present during 

negotiation, a wonan, unused to asserting herself, will settle for less than she 

would be awarded through judicial proceedings; others observe that courts are 

generally biased against awarding custody to men. These differences in 

perspective demonstrate that there is much information needed before dispute 

resolution methods for particular kinds of disputes can be prescribed. 



26 



•18- 



It should also be noted that an assessment of v>hat is at stake — and, 
therefore, what forum to use — might be different fran the perspective of the 
disputants than if viewed frcm the larger societal perspective. For instance, 
what outsiders might term as a minor c'ispute may be of major importance to at 
least ctie of the disputants. Further, just because many ciollars are at stake 
does not mean that a more formal process is required. There is no autcmatic 
correlation between the money involved in a dispute and the forum that is 
appropriate. Rather, it is the nature of the dispute that is ijrportant. For 
example, a contest over $200 in back rent rray be as inportant to the tenant as a 
$2 millicn contract suit is to a large corporation, and they may be of similar 
complexity to resolve. 

mOTITUriONALIZING DISPVTE RESQLLTTICN METOODS 

Central to the discussion of dispute resolution are issues related to 
institutionalizing methods of non- judicial dispute resolution — financing them, 
inplementing them, cind defining their relationship to each other and to the 
courts. It is in this area that more questions than answers surface. CXir 
ability to address these concerns is limited until we knc^%' more about existing 
and proposed mechanisms and can assess the usefulness and ijrplications of 
various approaches to resolving particular disputes. For exanple, although 
there is a growing popularity of court-annexed arbitration programs, seme 
experience shows that about the same percentage of cases get settled without the 
required arbitration as with it; vvhile the arbitrated cases tend to be settled 
faster, the cost of settlement may now include the arbitrator's fee. Analysis 
is further limited because there are, as yet, no measures of inpact and 
effectiveness that allow canparison of different dispute resolution techniques. 



27 



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Among the areas addressed by the Panel and requiring further inquiry aire 
the fol levying: 

Funding and Incentives for Alternatives 

Financing alternative means of dispute resolution will likely continue to 
be a problem. Those that now exist are funded fron a variety of sources, 
including user fees, foundation and corporate support, and government 
appropriations. Many programs ai^e financially insecure. 

Scrne programs may be funded privately fron user fees when all parties to a 
dispute can afford to pay, as in inter-corporate disputes. Arbitration has been 
funded this way historically, and some of the newer programs, such as the 
mini-trials and rent-a- judge, are similarly supported. But the alternatives 
will need public funding if they are to gain widespread use. Most probably they 
will have to be appended to the courts and funded fran judicial appropriations 
or from fees generated frcn litigation. 

In additica^, however, it may be desirable to fund mechanisms to help 
resolve disputes that do not, or should not, read-» the level of a formal 
ccmplaint. An exairple of this might be a dispute resolution center v^ere an 
elderly resident could take a coTTplaint with a nursing hone or a neighbor could 
take a complaint about noise. It may also be desirable to have a publicly 
funded program that is not publicly controlled v^en the government itself may be 
a party to a dispute or vhen the subject natter may be inappropriate for 
government involvement, such as some areas of controversy and political or First 
Amendment issues. 

If alternative methods of dispute resolution are to gain widespread 
acceptcince, incentives will have to be found both to establish appropriate 
programs and to use them. Iheoretically, the best incentive would, of course. 



28 



-20- 



be that the mechanism dispenses better justice — according to the criteria 
enumerated earlier — than other more traditional means. Nonetheless, it is 
likely that there will be resistance to these nev vehicles. Incentives will 
have to be developed for lawyers and clients alike to ensure the acceptance and 
use of alternatives to litigation. In addition, the programs' financing will 
remain precarious unless largely publicly supported. 

If that is the case, officials will have to be persuaded that establishing 
nonlitigative dispute resolution programs is in the public interest: that the 
programs save the public money in the long run; reduce demards on the courts arri 
government personnel; reduce the time and overhead costs required to settle 
disputes; and increase public satisfaction. Alternately, even without a 
determination of cost savings, the government may conclude the alternatives do 
indeed provide a better path to justice and should be established for their cwn 
sake. 

Dispute Resolution and the Legal Profession 

Many practical aspects of the legal profession as it is new structured need 
to be oonsidered in conjunction with any strategy to inprove courts and to 
increase use of alternatives to the court. 

Lawyers serve as the gatekeepers for disputes. People typically consult 
with lawyers when they have a controversy that has reached an intolerable stage. 
As a result, disputants rely on lawyers' advice on the appropriate path to 
follov for resolving their problem. Currently, law school curricula take 
inadequate account of the fact that lawyers spend more time negotiating than 
litigating. What is needed, therefore, is to train lawyers in the less 
adversarial negotiating skills and in how the various alternative metlKxJs of 



29 



-21- 



dispute resolution vADrk. In that way, they can assess the optimal path to taXe 
to resolve a conflict and may not automatically be inclined toward court. 

We also need to look at the econanics of the legal system to see if that 
breeds an excessive dependence on litigation to resolve disputes. For exanple, 
the three major ways of financing attempted resolution of a dispute — the hourly 
charge, contingency fee, and fixed fee — shape Ycm a dispute might be resolved. 
It has also been suggested that various forms of fee shifting might encourage 
parties to pursue a particular course of dispute resolution. Some exairples that 
might be considered are: shifting either attorney's fees or the cost of the 
forum, or both, to the loser; assessing additional costs if an offer of 
settlement is rejected and the decision does not reflect a significant 
inprovement for the disputant; increasing the cost of appeal if the appellant's 
position is not improved through appeal. It should also be noted, however, that 
these changes might have a substantial effect en discouraging seme cases that 
society views as important. For a number of reasons, the changes should not be 
inplemented before extensive and careful study. 

Noting that some attorneys are already uncomfortable with excessive 
reliance en adversarial approaches, the Panel questioned v^ether there are 
modifications of the current incentive structure that would encourage more 
lawyers to make greater use of dispute resoluticxi alternatives. It was 
suggested that seme attorneys may specialize in alternatives to litigation. 
This approach nay appeal to seme portion of the large nuntoer of recent law 
school graduates as they try to differentiate their skills. The legal 
professional must also be encouraged to look to the future and to explore 
pre-paid legal clinics, legal insurance, and other mechanisms to make legal 
services affordable to a larger portion of the population. 



30 



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Ways must also be found to prevent sone lawyers frcn abusing the litigation 
process by excessive reliance en courts, by filing frivolous appeals, and by 
providing inadequate service to their clients. Part of this problem is that 
neither the parties thenselves nor the lawyers bear the full costs of processing 
cases that have a very small chance of success. Indeed, there are incentives on 
the lawyer's part to pursue them: the lawyer is paid for the effort, and it is 
arguably unprofessional not to pursue any available avenue. Thus, means must be 
found to have the disputant and the lawyer make value choices as to whether the 
process should be pursued. When the process is abused, proper sanctions should 
be imposed. 

The Relationship of Alternatives to the Courts 

If nonlitigative methods of dispute resoluticn are to gain broad use, 
participation ney have to be ccmpulsory. The disputing party without influence 
may not be able to suimcn other parties to a nonlitigative forun if it is 
voluntary. It nay be appropriate in seme instances to require parties to use 
non-binding arbitraticn or mediation before sutmitting certain types of dispute 
to litigation. For exanple, a court could require a complainant against an auto 
ccmpany to sutnit the dispute to a consumer action panel (CAP) before the court 
would hear it. A creditor could be required to attempt to reach settlement 
through mediation prior to going to court. Divorce cases could be referred 
initially to mediation for settlement of custody and property issues. 

Sane suggest that judges need increased statutory authority to invoke this 
broader use of eiltematives. Certainly, these exanples add more VN«eight to the 
suggestion that society pay for options to the court just as it pays for the 
courts. Further, requiring the use of foraiis other than the courts may raise 



31 



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constitutional due prcxress questions unless disputants eventually could obtain a 
CJDurt hearing. Such hearings oould either be narrow appellate- type reviews or 
trials de novo. 

To reduce the pressure on judges, adjuncts — such as nasters, referees, and 
magistrates — oould be used more widely, even in highly ccrplex litigation, and 
they oould engage in a broader range of dispute resolution techniques. 

Whether the use of alternative processes is mandatory or not, it has been 
suggested that a centralized system be established to screen corrplaints and 
refer then to appropriate dispute resolution mechanisms. This is an idea worth 
examining and testing, as the American Bar Association has been advocating 
through experimentaticn with "multi-door courthouses." 

Alternatives and the Public 

Public acceptance of the full range of dispute resolution methods depends, 
in part, en acceptance of pjeople who provide these services. This raises 
questic^s of professional responsibility, ethics, and accreditation. Should it 
be assumed that practitioners have to be lawyers? Is it the unauthorized 
practice of law, as seme bar associations assert, for practitioners other than 
lawyers (social and health care workers or ccrtmunity volunteers, for exanple) to 
serve as mediators? There are a nunber of professional oodes of ethics v»hich 
have been debated extensively over the years and v^ch may need revision to keep 
t?3 with new developments in this field. 

Because seme nonlitigative methods are not well known to large segments of 
the general public (including the legeQ profession), education of potential 
users about these methods and removal of barriers to their use are iirportant 
steps in the instituticnalization process. Part of this involves accurately 



32 



-24- 



differentiating techniques from each other, scrrvething not currently done by the 
press or the public. 

Many disputes are eilready handled in tribunals within the oonmunity and 
internal to a number of institutions — schools, churches, trade groups, 
businesses, for instance. There nay be potential for oThancing their ability to 
resolve disputes more effectively and for extending their responsibilities to 
include new areas of concern. In fact, widespread use of alternative methods of 
dispute resolution is critically dependent en their acceptance ty existing 
institutions and at the grassroots level generally. It is v^.en disputes are not 
resolved at these levels that people turn to lawyers and the law. 

FUTURE DIRBCTICNS 

To date, concern with problems of the courts and with the establishment of 
alternative dispute resolution mechanisms has come primarily from judges, court 
adninistrators, dispute resolution practitioners, a few lawyers, acadanicians, 
and ^)ecial-interest groups. However, the success that various methods of 
dispute resolution will have in reducing court caseloads, minimizing cost and 
delay, increasing public satisfacticxi, and oontributing to the health and 
productivity of society is directly related to the extent that they are well 
defined, widely understood and supported, adequately funded, used in the 
appropriate circumstances, evaluated, and modified as necessary. These are 
objectives that practitioners and scholars cannot achieve alone, but v*iich will 
also require the participation of users, elected officials, and the general 
public . 

It was with this understanding that the Panel formulated its 
reccrtmendations to further two basic objectives: 



33 



-25- 



• To ensure that dispute resolution mechanisns operate in the 
public interest, including tfjat tliey 

— are accessible to disputants; 

— protect the rights of disputants; 

— are efficient in terms of cost and time; 

— are fair and just; 

— assure finality and enforceability of decision; 

— are credible; and 

— express the conmunity's sense of justice. 

• lb increase public awareness of dispute resolution so that it 
becomes an important part of the public policy agenda for the 
country. 

As the Panel members considered tiie principles v/iich should guide the 
development of systems of dispute resolution, they expressed frustration with 
the limits of available infoniiation. Clearly, tliere is a great deal of activity 
within the field. There are more than tv/o hundred neighborhood justice centers; 
a range of corporate innovations (mini-trials, rent-a-judge, etc.); family, 
divorcje, and child custody mediation; programs attached to the courts; methods 
of deciding public policy disputes (such as annexation, allocation of block 
grants, siting of hazardous facilities, etc.); regulatory reform; and 
well-known, established programs such as labor-management arbitration, the 
Community Relations Service, and the Federal Mediation and Conciliation Service. 

But very little of the experience with these programs has been documented. 
Ttje information that does exist is fragmented and housed in many separate 
places. The result is that, while jurisdictions have problems in common, tJiere 
is r» mechanism for finding out what has been tried elsewJiere and with v*iat 
success. Moreover, dispute resolution methodologies are developing in various 
substantive areas with little cross-fertilization. As a result, knowledge, 
experience, and resources are wasted. 



34 



-26- 



Thus, better information is necessary for the kinds of analyses that will 
determine the impact of different dispute resolution approaches, and assess how 
they measure up against the public policy criteria listed earlier. 

This informaticr must be disserdnated to a nuirber of special target 
audiences — seme of VN^iich are not yet aware that dispute resolution should be 
among their concerns. Development of this interest and better understanding can 
ocne, in part, through education of the media. Further, information must be 
specially tailored to the audience — researchers have different needs and 
interests than policymakers; the general public has different ooncems than does 
the legal profession. 

The Panel ooncl-aded that future action should emphasize experimentation, 
evailuaticn, and disseminaticn of information. The Panel mentoers suggested a 
oompirehensive and integrated strategy that focuses en: 

— Pilot programs and research to test various approaches to, and 
assunptions about, dispute resolution; 

— Centralized collection, analysis, and dissemination of information en 
dispute resoluticn options; and 

— Efforts to expand public awareness and debate en dispute resolution. 

The Panel identified a number of specific initiatives to advance the 

examinaticn and use of dispute resolution alternatives: 

• Resource Center or Clearinghouse - A central location, in or out 
of government, should be established to collect, analyze, and 
disseminate informaticn en dispute resolution. This information 
is relevant to the concerns of a wide range of people and should 
be presented in different ways depending en the needs of the 
audience: dispute resoluticn practitioners, potential 
disputants, p»ssible funders or sponsors of programs, educators, 
legislators, researchers, the bar, tlie media, and the general 
public. Informaticn must be readily available to localities and 
at little or no cost. Canputer networking, production of 
bibliographies, newsletters, topical analyses, and a technical 
assistance capability are program aonponents to be oonsidered. 



35 



■27- 



• Ex per mental Prograrmi ng and Research - There is a need to 
inventory existing dispute resolution moclianisms and to establish 
new pilot efforts to determine what works, v^at does not, and 
\*^at characteristics soem to be associated with success and 
failure. There should be efforts to identify model programs 
v*^ich can be replicated. There are rreny concepts v^ich warrant 
testing. Based en what is kncv/n, they may seem like good ideas; 
and yet, without careful rese5irch, their actual inpact can only 
be guessed. 

• Creation of State Ccmittees - Special oonraittees of state bars 
could be established to study dispute resolution. Advice and 
information oould be provided to the states through a mechanism 
established at the federal level. 

• National Conference on Dispute Resolution - A national conference 
oould be scheduled to focus public attention and generate debate 
on dispute resolution in the United States. It oould provide 
essential information on what is happening in many areas and the 
attendant academic analysis; reflect the ooncerns and interests 
of the government in the area; establish important networks and 
coalitions; stimulate local initiative; and heighten the public's 
interest in the subject. The Panel observed that for a 
conference to naximize its inpact, it must be part of a longer 
term effort vs/hich includes collecticn of information, preparation 
of materials, and the capability for fbllc«Af-up. 

• Legal Professional Education - This could involve collaborative 
efforts among the existing continuing legal education programs, 
the American Bar Association, and foundations to sponsor seminars 
and short oourses for lawyers interested in irrproving their 
negotiating skills. Beir associations and judicial training 
programs should be similarly encouraged to include alternative 
dispute resolution methods in their programs. Law school 
curricula should incorporate less adversarial and ronlitigative 
approaches to dispute resolution. 

• Outreach to Other Professional Associations - There is a wide 
range of special target audiences who sponsor their own annual 
meetings and training seminars at the local, state, and rational 
levels. Sessions on dispute resolution could be developed and 
offered for inclusion in their programs. lyLLS approach would 
considerably increase krcx^ledge about and interest in dispute 
resolution among a diversity of groups of the population. 

• Television and Radio Progranming - Programs on specific 
substantive areas in dispute resolution and the topic in general 
would make a significant contributicn to public education and 
awareness . 

• Hearings - To generate national attention and increased 
canmitment to alternatives, congressional ccrmittees could hold 
hearings on the need for a broad approach to dispute resolution. 



36 



-28- 



This is only a particil listing of possible strategies to fully develop 
and effectively dissenvinate information en dispute resolution. As 
suggestions, they are based en the recognition that interest and 
activity in the field are not enough. Careful inquiry, continual 
policy analysis, and public involvement are needed to ensure that new 
initiatives move society closer to having a system of dispute 
resolution that better reflects the cGnmitment to justice for all. 



37 



APPEM)ICES 



38 



-30- 



Appendix 1^: Tables 

General Observations on the Ccrparison and Evaluation 
of the Various Dispute Resolution Mechanisms 

• Dispute nechanisns do not exist in isolation, but in close proxirruty to one 
another. They interact with and influence one another. Thus, for exanple, 
.•nany rrechanisn^s that work by agreement depend on the tlireat of resort to 
institutions with coercive pcvvers. Much of what coercive institutions do, 
in fact, is to induce and ratify agreeinents between disputants. 

• We usefully distinguish pure types like adjudication and rr.ediation, but 
institutions usually do not operate in accordance with a single prototype. 
In practice, these types are combined, and much dispute processing deviates 
frcn the avowed prototype. This is particularly true of oourts, where Vshat 
starts as adjudication may end ip as a form of mediation. And, generally, 
the mechanisms arploying third parties witii the power to rreXe binding 
decisions often create a setting for negotiations between the disputants. 

• Each of the types listed on the tables that follow is a conposite, spanning 
a wide range of actual instances. For example, arbitration includes 
oourt-annexed arbitration, arbitration by standing bodies of experts within 
trade associations, caimercial arbitration by ad hoc arbitrators supplied 
by the Anerican Arbitration Association, etc. Hence the list of qualities 
associated with a particular mechanism can only be general and suggested 
and must be reassessed in relation to any specific stance of the type. 

• In accounting features as strengths (advantages) or weaknesses 
(disadvantages), we should recall that this depends on \shat we want to 
achieve. For exanple, absence of a constraint to decide according to 
pre-existing rules may be accounted an advantage if we seek primarily 
resolution of the dispute at hand but may be a disadvantage if we seek to 
set a precedent for resolution of large nuirbers of claims or to forward 
public policy embodied in a rule. 

• We must examine the advantages and disadvantages of the alternative 
mechanisms in both the public and private sectors! In seeking such 
odnparisons, we must avoid false ocmparison between the ideal functioning 
of one institution and the actual functioning of another. 

Table 1 - Seme Major Criticisms of the Traditional Court System of 
Dispute Resolution 

2 - Current Efforts to Inprove Dispute Resolution 

3 - Seme Criticisms of Alternative Methods of Dispute Resolution 

4 - Advantages and Disadvantages Associated with Dispute 

Resolution Mechanisms 

5 - Partial Listing of Characteristics that May Argue for a 

Specific Dispute Resolution C^ion 



39 



TABLE 1: S o me Major Criticisms of the Traditional 
Court System of Dispute Resolution 



COST, DELA Y 

- the process is expensive; costs often exceed benefits 

- litigation does not provide timely resolution of the dispute; delay 
imposes additional costs 

- in the aggregate, the process consumes resources that could be 
applied to solve the problem (e.g., compensating victims) 



ACCESS, PARTICIPATION 

- court processes are mystifying and difficult to understand 

- using courts requires employment of expensive intermediaries 

- differences in knowledge of the system and in ability to bear costs, 
delay and uncertainty create inequities between parties 

INAPPROPRIATENESS OF FORUM 

- courts may lack expertise in the subject matter of the dispute 

- courts transform disputes in ways that obscure the genuine issues 
between parties 

- courts may be unable to give a remedy that addresses the underlying 
causes of the dispute 

- the adversary setting polarizes parties and deflects them from the 
search for an optimal solution 

WIDER EFFECTS 

- adversarial nature of proceedings disrupts continuing relations 
between parties 

- court decisions may channel energy to preparation for further 
adversary encounters rather than preventive action/aggregate problem 
solving 



40 



TABL£ 2; Current Efforts to Iitprove Dispute Resolution 

A. Reforming the Courts 

1. Inproved administration of courts — e.g., efficient use of judge 

time 

2. Inproved rmnagement of cases — e.g., limited oontinuances 

3. Refonn of procedures — e.g., control of discovery 

4. Diversion to sirtplified and expedited procedures — e.g., srrall 
claims or arbitration 

5. Requiresnent of preprocessing — e.g., screening panels 

6. Settlement facilitaticai — e.g., at pretrial conferences 

B. Creating forums separate frcn\ the courts 

7. Labor management dispute institutions — arbitration, mediaticn, 
grievance procedures 

8. Arbitration of camercial disputes 

9. Private judging — e.g., the "mini-trial," "rent-a- judge" 

10. Locally-based dispute resolution — e.g., neighborhood justice 
centers 

11. Media-sponsored complaint handling — e.g., "action lines" 

12. Industry (or individual firm) sponsored conplaint programs — e.g., 
Consumer Action Panels (CAPs) 

13. Grievance procedures within institutions — e.g., hospitals, 
prisons, schools, etc. 

14 . Clrbudsmen 

15. Mediation of large scale multi-party controversies — e.g., 
envirormental, land use, and ccrrTiunity disputes 

16. Divorce nediaticai 

17. Policy oonsensus-building programs — e.g., Naticxial Coal Policy 
Project, Negotiated Investment Strategy 

C. Systemic changes 

18. Delegalization — e.g., no fault ocrrpensation systems 

19. Regulatory innovations — e.g., the "bubble" approach to air-quality 
control 

20. Einhancing the ability to avoid or handle disputes — lay education, 
do-it-yourself, lew-cost Jegal clinics 



Adapted from Marks, Szanton & Johnson, Taking Stoc k of Dispute Resolution: 
An Overvic?v/ of the F ield , ccnmissionod by the National Institute for 
Dispute Resolution, (1981) 



41 



TABL£ 3; Seme Criticians of 
Alternative Methods of Dispute Resoluticyi 

POST 

- n«y not save significant time or noney 

- lack of finality may increase expense and time 

ACCESS 

- may not be kncvm to potential clientele 

- may not be available except to wealthy disputants 

DEFICIENCIES OF PROCESS 

- may lack due process and other safeguards 

- ray not involve needed expertise 

- may not redress power irrtoalaLnces 

- may lack finality 

- iTBy lack power to induce settlements 

- may lack power to enforce its decisions 

WIDER EFFECTS 

- may hide dispute from public scrutiny 

- may be impermeable to public standards 

- may not induce preventive solutions 

- may pull into systan cases that would best be settled elsewhere 

- rray de-fuse pressure to reform courts 

- diversion of Icirger disputes may remove constituencies vital to the 

courts 

- relegation of smaller disputes to alternatives may increase 
alienation fron courts 



42 



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TABLE 3 : Partial Listing of Characteristics That May Argue 
For One Or Another Type Of Mechanism As Appropriate 



43 



Adjudication 



Arbitration Mediation /Negotiation 



need to create 
a public norm 



- high volume 



desire to preserve 
continuing relations 



need to offset - premium on - emphasis on 
power imbalance speed, privacy, future dealings 
closure 



ARGUES 
FOR 



need for decision 
on past events 



need to avoid 
win-lose decision 



need to compel 
participation 



premium on control 
by disputants 



- multiple parties 
and issues 

- absence of clear 
legal entitlement 



high volume, 
low stakes 



- need for 
precedent 



need to compel 
participation 



ARGUES 
AGAINST 



continuing 
relations 



need to enforce 
agreements 



need for speedy 
resolution 



need to create 
a public norm 



44 



-36- 



AppexKJix 2: Lexiocxi 

Sane new terms and the ant)igvx5us use of old ones characterize the terminology 
being used to describe innovative conflict resolution processes. For exarple, 
the word "mediaticn," traditionally viewed as a formal, structured process, is 
now being used by seme to describe any effort by a third-party neutral to bring 
disputants to a voluntary settlement of their differences. Others have coined 
phrases such as "Rent-a-vJudge" to describe a variation of the arbitration 
process. The following is intended to clarify sane of the carrtxi terminology in 
the field of alternative dispute resolution. 

Alternative Dispute Resolution mechanisms or techniques generally cire intended 
to mean alternatives to the traditional oourt process. Ihey usually involve 
the use of impeurtial interveners who are referred to as "third parties" (no 
matter how many parties are involved in the dispute) or "neutrals." Seme 
define Alternative Dispute Resolution more broadly to mean finding better 
ways to resolve disputes, including those that have not reached — and ney 
never reach — the courts or other officicil forums. Others place the emphasis 
specifically on the need for ways to alleviate the burden on courts. 

Alternative dispute resolution is not a new concept to the judiciary. Many 
states encourage and utilize Diversion programs v^ich remove less serious 
criminal matters fran the formal adninistration of justice system. Most 
civil cases are settled before going to trial ty using a variety of 
techniques to bring about voluntary settlements including Pre-trial 
Settlement Conferences, mediation by magistrates and, at times, mediation in 
chairbers by the judge. 

Arbitration , widely used in carmercial and labor -management disagreements, 
involves the sutanission of the dispute to a third party who renders a 
decision after hearing arguments and reviewing evidence. It is less formal 
and less caiplex and often can be concluded more quickly than court 
proceedings. In its most oormcxi form. Binding Arbitration, the parties 
select the arbitrator and are bound by the decision, either by prior 
agreement or by statute. In Last Offer Arbitration, the arbitrator is 
required to choose between the final positions of the two parties. In 
labor -management disputes. Grievance Arbitraticxi has traditionally been used 
to resolve grievances under the provisions of labor ccaitracts. I-tore 
recently. Interest Arbitration has been used v*ien collective bargaining 
brea)cs dcwn in the public sector, where strikes may be unlawful. 

Court-Annexed Arbitration is a newer development . Judges refer civil suits to 
arbitrators who render pranpt, non-binding decisions. If a party does not 
accept an arbitrated award, seme systems require they better their position 
at trial by seme fixed percentage or court costs are assessed against them. 
Even vyhen these decisions are not accepted, they sometimes lead to further 
negotiations eind pretrial settlement. 

Conciliation is an informal process in v^iich the third party tries to bring the 
parties to agreement by lowering tensions, improving communications, 
interpreting issues, providing technical assistance, exploring potential 
solutions and bringing about a negotiated settlement, either informally or, 
in a subsequent step, throu<^ formal mediation. Conciliation is frequently 



45 



37- 



usa6 in volatile conflicts and in disputes v^.ere the parties are unable, 
unwilling or unprepared to cane to the table to negotiate their differences. 

Facilitation is a oollaborative process used to help a group of individuals or 
parties with divergent viev-s reach a goal or ccrplete a task to the mutual 
satisfaction of the participants. IVie facilitator functions as a neutral 
process expert and avoids making substantive contributions. The 
facilitator's task is to help bring the parties to oonsaisus on a nurrtjer of 
ccrplex issues. 

Fact Finding is a process used fron time to time primarily in public sector 
collective bargaining. The Fact Finder, drawing on both information 
provided by the parties and additional research, reccrrr.ends a resolution of 
eadh outstanding issue. It is typically non-binding and paves the way for 
further negotiations and mediation. 

Mandated Settlements and Negotiated Settlements . Alternative dispute resolution 
techniques involving the use of neutrals are often divided into two 
categories: (1) settlements negotiated by the disputants and (2) 
settlements mandated by a third party. A more recent development has been 
the merging of the two; if the parties are unable to resolve their 
differences voluntarily, the third-party is authorized to dictate the terms 
of the settlements (see Med-Arb below). 

Med-Arb is an innovation in dispute resolution under which the med-arbiter is 
authorized by the parties to serve first as a mediator and, secondly, as an 
cirbitrator erpcwered to decide any issues not resolved through mediation. 

Mediaticxi is a structured process in vhich the mediator assists the disputants 
to reach a negotiated settlanent of their differences. Mediation is usually 
a \oluntary process that results in a signed agree.ment v.hich defines the 
future behavior of the parties. The mediator uses a variety of skills and 
techniques to help the parties reach a settlement but is not erpowered to 
render a decision. 

•n^ Mini -Trial is a privately-developed method of helping to bring about a 
negotiated settlement in lieu of corporate litigation. A typical mini-trial 
might entail a period of limited discovery after v^ich attorneys present 
their best case before managers with authority to settle and, most often, a 
neutral advisor v^o nay be a retired judge or other lawyer. The managers 
then enter settlement negotiations. They may call en the neutral advisor if 
they wish to obtain an opinion on how a court might decide the natter . 

The Multi-Door Center (or Multi-Door Court House) is a proposal to offer a 
variety of dispute resolution services in one place with a single intake 
desk which vould screen clients. Under one model, a screening clerk vould 
refer cases for mediation, arbitration, fact-finding, ombudsman or 
adjudication. The American Bar Association plans to experiment with 
multi-door centers in three cities in 1983. 

Negotiated Investment Strategy is a mediation process which has been used on a 
limited basis to bring together federal, state and local officials and 
ccnmunity members to resolve differences, disputes and problems related to 
the allocation and use of public resources. 



46 



■38- 



Neighborhood Justice Center (NJC) was the title given to the three local dispute 
resolution centers {Atlanta, Kansas City cind Los Angeles) funded by the 
Department of Justice in an experiinental edtemative dispute resolution 
program in the mid 1970 's. That experijnent contributed to the start of 
about 180 local centers now operating throughout the country under the 
sponsorship of local or state govemnents, bar associations and foundations. 
NJC ' s deal primarily with disputes between iiidividuals with ongoing 
relationships (landlord- tenant, donestic, back-yard conflicts, etc.) Many 
draw their caseloads from referrals from police, local courts or 
prosecutors' offices with which they affiliated. The dispute resolution 
techniques most often offered by the centers are mediation and conciliaticsi. 
Scrne centers erploy med-arb. Referrals to other agencies are a ccmrtDn 
feature. Many centers earn seme incorrie providing training and technical 
assistance services. They are ailso kncvn as Cannunity Mediation Centers, 
Citizen Dispute Centers, etc. (See ABA's Dispute Resolution Program 
Directory) 

An Qrbudsman is a third party >^o receives and investigates ocrplaints or 
grievances aimed at an institution by its constituents, clients or 
erployees. The Crrtxidsiran rray take actions such as bringing an ajpeirent 
injustice to the attention of high-level officials, advising the ccrplainant 
of avcdlable options and recourses, proposing a settlement of the dispute or 
proposing systemic changes in the institution. The CMxadsman is often 
employed in a staff position in the institution or by a branch or agency of 
government with responsibility for the institution's performance. Many 
newspapers and radio and television stations have initiated crixidsman-like 
services under such names as Action Line or Seven <xi Your Side. 

Public Policy Dialogue and Negotiaticffis is ained at bringing together affected 
representatives of business, public interest groups and government to 
explore regulatory matters. The dialogue is intended to identify areas of 
agreenent, narrow areas of disagreenent and identify genercil areas and 
specific topics for negotiation. A facilitator guides the process. 

Rent-a-Judge is the popular name given to a procedure, presently authorized by 
legislation in six states, in v^ich the court, on stipulation of the 
parties, can refer a pending lawsuit to a private neutral party for trial 
with the same effect as though the case were tried in the oourtrocn before a 
judge. The verdict can be appealed through the regular court appellate 
system. 



47 



-39- 

APPENDIX 3: FURTHER READIhGS AND RESOURCES 
Alternative Processes 

A. Conflict Resolution - General 

Alpers, Benedict and Nichols, Lawrence. B eyond the Courtroom — Pro grams 
in Co mmuni ty Justi ce and Co nflic t Resolut ion . Lexington, MA: 
Health Lexington Books, 1981. 

"Dispute Resolution," Yale Law Journal , Vol. 88, No. 5, 905-1104, 1979. 

Galanter, Marc. "Justice in Many Rooms," Journ al of Legal Pluralism , 
Vol. 19, 1-47. 

New Approaches to Conflict Resolution . New York: Ford Foundation, 
1978. 73 pp. 

Wehr, Paul. C onflict Regulation . Westview Press, 1979. 

B. Negotiation 

Eisenberg, Melvin A. "Private Ordering Through Negotiation: Dispute 
Settlement and Rule-Making," 89 Ha rvard La w Review 637, 1976. 

Fisher, Roger and Ury, William. Getting to Yes : Negotiating Agreement 
Without Givi n g In . Boston: Houghton Miff 1 in Co. , 1981. 

Gulliver, P. H. Disputes and Negot iations : A C r oss C u ltura l 
Perspective. New York: Academic Press, 1981. 

Pruitt, Dean. Negotiation Behavior . NY: Academic Press, 1981. 

Raiffa, Howard. Ttie Art and Scie n ce of Negotiation . Cambridge, MA: 
Harvard/Bel knap, 1982. 

Rubin, Jeffrey A. and Brown, Bert. The Social Psychology of Bargaining 
and Negotiation . New York: Academic Press, 1975. 

Williams, Gerald R. Legal Negotiation and Settlement . St. Paul: West 
Publishing Company, 1983. 

Zartman, William, ed. The Negotiations P roc ess; Th3o ries and 

Applications. Beverly Hills: Sage Publications, 1975. 

C. Mediation 

Alternative Dispute Resol ution : Who * s^ in Cha rge of Mediation. 

Washington, DC: American Bar Association Special Committee on 
Alternative Means of Dispute Resolution, 1982. 

Felstiner, William and Williams, Lynne. "Mediation as an Alternative 
to Criminal Prosecution: Ideology and Limitations," La w and 
Human Behavior, Vol. II, 223-247, 1978. 



48 



-40- 

Fuller, Lon. "Mediation: Its Forms and Functions," 44 Southern 
Ca lifo rnia Law Review 305, 1971. 

Mediating Soc ial Conflic t. New York: Ford Foundation, 1978. 

Merry, Sally Engle. "Social Organization of Mediation in 
Non-Industrial Societies," Richard Abel, ed.. Politics of Informal 
J ustice , Vol. II. NY: Academic Press, 1982. 

Simkin, William. Mediation and the Dynam i cs of C ollecti ve Ba rg aining . 
Washington, DC: Bureau of National Affairs, 1971. 

D . Arb i tration 

Adler, Jane W. , et al. Simple Justice; H o w L itig ants Fare in the 
Pittsburgh_Court Arbitratio n Program . Santa Monica: Institute 
for Civil Justice, 198"3. 

Fleming, Robben W. The L abor Arbitration Process. University of 
Illinois Press, 1967. 

Hensler, Deborah et al. Judic i al A r bitra tion in Califor nia: Ttie First 
Yea_r, Santa Monica, CA: Rand Corporation, 1931. 

Lind, E. Allan and Sheppard, John E. Evaluatio n o f Co urt Annexed 
Arbitration in Three Federal District Courts, Washington, DC: 
F'ede r a 1 Jud i c i a 1 Cente r , 198 1 . 

Mentschikoff , Soia. "Commercial Arbitration," 61 Co la-r'JSia Law Review 
876, 1962. 

E . Clr\budsma_n 

Anderson, Stanley. O mbudsman P apers; American Expe rienc e and 

Proposals. Berkeley, California; Institute of Governmental 
sYudi'es, 1969. 

Denenberg, Richard V. "Frontier Justice," AP F Repo rt. New York; 
Alicia Paterson Foundation, 1980. 

Hill, Larry B. The Mode l Ombud s man : Institutional izing New Zealand's 

Democratic Expe r iment . Princeton: Princeton University Press, 
1976. 

Verkuil, Paul R. "The Ombudsman and the Limits of the Adversary 
System," 75 Columbia Law Review 845, 1975. 

II. Dispute Resolution and the Law 

ABA State Legislation on Dispute Resolution. Washington, DC; ABA 
Specif Conmittee on Alternative Dispute Resolution, 1932. 

Burger, Warren. "Isn't There a Better Way?" 63 ^'^eiric3n_Bar 
Association Journal 247-77, 1982. 



49 



-41- 

Cappelletti, Maoro and Garth, Bryant. Access _to_Just i^ce : The 

Worldwide_Movement to Make Rights Ef f ective,_A Geneva l__Re2qrt , 
Vol. l". 'Milan: Guiffre, Editore-Melan, ' 1978. ~ 

Galanter, Marc. "Reading the Landscape of Disputes: What We Know and 
Don't Know (and Think We Know) About Our Allegedly Contentious and 
Litigious Society," UCLA_Law_Rev i^ew , Vol. , , 1983. 

Galanter, Marc. "Why the Haves* Cone Out Ahead," Law & S ocie ty Review, 
Vol. 9, 95-160, 1974. 

Merry, Sally Engle. "Going to Court: Strategies of Dispute Management 
in an American Urban Neighborhood," 13 L3w_and_Society 896, 1979. 

Rice, Paul. "Mediation and Arbitration as a Civil Alternative to the 
Criminal Justice System: An Overview and Analysis," 29 American 
Universi ty Law Review 1, Fall 1979. 

Green, Eric, Marks, Jonathan and Sander, Frank (eds.). The La wyers 
Ch anging Role in Resol ving D i spute s, set of papers presented at 
the October 1982 conference co-sponsored by the National Institute 
for Dispute Resolution, the Harvard Law School, and the ABA 
Section of Litigation, 1982. 

ABA_1^83_Law School Director of Dispute Resoluti_qn_Programs. 
Washington, DC: ABA Special Committee on Alternative Means of 
Dispute Resolution, 1983. 

Sander, Frank. "Varieties of Dispute Processing," Federal_Rules 
Decisions, Vol. 70, 111-34, 1976. 

III. Dispute Resolution and Its Applications 

A. G ener al 

Abel, Richard. T tie Politics of In formal Justi ce, Vol. I, The Amer ican 
Expe r ience , and Vol. II, Comparat ive Studies . New York: Academic 
Press, 1982. 

Alternative Me thods of Dispute Settlem ent : A Se lected Bibl i ogr^aphy . 
Washington, DC: ABA Special Committee on Alternative Dispute 
Resolution, 1982. 

AB A Dis p ute Resolution Program Directory 1983 . ABA Special Comnittee 
on Alternative Dispute Resolution, Washington, DC, 1983. 

Auerbach, Jerold S. Justice W i thout Law . University Press, 1983. 

Denenberg, Tia S. and Richard V, Dispute_Resoluti^qn: Settling 

Conflic ts W ith out Legal Ac tion (pamphlet). New York: K±>lic 
Affairs Conmission, Inc., 1981. 

Nader, Laura. "Disputing Without the Force of Law," 88 Yale Law 
Journal 998, 1979. 



50 



-42- 

Singer, Linda. "Growth of Non-Judicial Dispute Resolution: 
Speculations on the Effects of Justice for the Poor and the Role 
of Legal Services," Cl earinghouse Review , 353, December 1979. 

To Establish the United States A cademy of Pe ace, a Report of the 
Comnission on the Proposals for the National Academy of Peace and 
Conflict Resolution. Washington, DC: GPO, 1981. 81-600088. 

Tomasic, Roman and Feeley, Halcolm (eds.). Neighborhood Justic e. New 
York: Longman Press, 1982. 

B. Community 

Doo, Leigh-Wei. "Dispute Settlement in Chinese American Communities," 
Am erica n Journal of Compara tive Law, Vol. 2, 627-63, 1973. 

Hofrichter, Richard. "Justice Centers Raise Basic Questions," 2 New 
D irec t ions 6, pp. 168-72, November-December 1977. 

Jaffe, James. So Sue Me : Th e Stor y of a C ommunity Court. NY: 
Saturday Review Press, 1972. 

Kraybill, Ronald. R epairing the Breach: Min i stering in Co i munity 
Co nflict . Mennonite Conciliation Service, 3rd ed, Scottsdale, 
PA: Herald Press, 1982. 

McGillis, Daniel. Neighborh o od Justice Center s. Washington, EC: U.S. 
Department of Justice, National Institute of Justice, 1980. 

Pryor, Donald and Smith, Walter. Alternativ e s to Prosecu tion: A 

Rev iew o f Recen t Resea rch Finding s. Washington, DC: Pretrial 
Services Resource Center, 1983. 

Reso lving C onmunity C o nflict: An Annotated Bibliografrfiy . Institute of 
Community and Areas Development, University of Georgia, 1983. 

Salem, Richard. Community Di sput e Resolution Th rough Outside 
Intervention . Washington, DC: Society of Professionals in 
Dispute Resolution, Occasional Paper, 1982. 

C. Co nsume r and Co rporate 

Center for Public Resources. Dispute Ma na gemen t. New York: CPR, 
1982. 

Co nsumer Dispute Reso lution : Expl o ring the Alte rnat ives , Con f e r ence 
Papers. Washington, DC: ABA Special Committee on Dispute 
Resolution. 

Robert Coulson. Bus iness A rbit ration : What Y ou Ne e d to Kn ow. New 
York: American Arbitration Association, 1982. 

Macaulay, Stewart. "Lawyers and Consumer Protection Laws," Law & 
Society Re view , 115-71, 1979. 



51 



-43- 
Nader, Laura. No Acce ss to La w. New York: Academic Press. 1980. 

D. Environmental 

Bacow, Lawrence S. and Wheeler, Michael. Environmental Disp ute 
Resoluti^qn. New York: Plenum Publishers, 198T. 

Bellman, Howard, Cormick, Gerald and Simpson, Cynthia. Using Mediation 
When_S i t i ng_Haza rdous_Was te Managemen t Fac ilities . Wa sh ilng ton ,~ 

DC:' GPO, July 1982. '"' 

Cormick, Gerald. "The Myth, the Reality and the Future of 
Environmental Mediation," 24 Env ironment 7, September 1982. pp. 
36-39. 

Envi ronmen ta l_Con£ 1 i_ct_Resql ut ion ^ A Selected_Bi bl iography . 

Washington, DC: The Conservation Foundation, 1983. 

Envi ro nme ntal Med iation : An E ffec tive Alte r nat ive? Repo r t of 

Conference, Reston, VA, January 1978; Palo Alto, CA: RESOLVE, 
Center for Environmental Conflict Resolution, 1978. 

Ermain, John R. and Bidol, Patricia A. A Bibliography on Natural 
Resou r ce and Envi ro nmen tal Conflict. Council of Plannilig 
Librarians, 1982. 

Talbot, Allan. Sett ling Things: Six Case Studies in Env ironmental 

Mediation . Washington, DC: The Conservation Foundation, 1983. 

E. Famil y 

Alternative Means of Family Dispute Resolution . Conference Papers. 
Washington, DC: ABA Special Committee on Alternative Dispute 
Resolution, 1982. 

Mnookin, Robert and Kornhouser, William. "Bargaining in the Shadow of 
the Law: T^e Case of Divorce," 88 Th e Yale Law Journal 950-997, 
1979. 

Silberman, Linda. "Professional Responsibility of Divorce Mediation," 
F amily L aw Quarterly , Summer 1982. 

"Professional Responsibility Problems of Divorce Mediation," Family Law 
Quart erly , Summer 1982. 

F. Other 

Armentrout Association. E valuation of the Connecticut Nego tiated 

Investme nt Strategy Experiment: An Alternative Approach to 
Intergove rnmenta l Decisionm aking. Atlanta: Armentrout & 
Associates, March 1983. 

"The California Rent-a-Judge Experiment: Constitutional Policy 
Considerations of Pay-as-you-go-Courts," 94 Har vard Law Review 
1592-1615. ■ 



52 



-44- 

Gellhorn, Walter. When Americans Complain; Governmental Grievance 
Procedures . Cambridge: Harvard University Press, 1966. 

Harter, Philip J. "Negotiating Regulations: A Cure for the Malaise," 
71 Geor getown Law Journal , 1:1-118, 1981. 

Murray, Francis X. and Curran, J. Charles. ;Vhy They Agree d: A 

^"^■^J-^.^^^^.Q^ Analysis o f th e Nation a l Coal Policy Project . 

Washington, DC: Center for Strategic and International Studies, 
Georgetown University, 1982. 

The Se ttlem ent Sol ution : Asse ssing Me diat ion as a To ol in the 

Enf orcement of Civil Rights , study prepared for HEW (Contract No. 
fEW 100-79-0169) by the Project on Equal Education Rights, NOW 
Legal Defense and Education Fund, and SRI International. 
Washington, DC: Office of Civil Rights, 1980. 



53 



Reprinted with p«raiasion Crom Bndiaput*, Inc., Copyright 1987 



MAKING 

ALTERNATIVE DISPUTE 
RESOLUTION 

WORK: 

A Guide 

for 

Practicing Lawyers 



Copyright 1987 -- ENDISPUTE, Incorporated 
Please do not reproduce without permission 



55 



HOW ENDISPUTE CAN HELP: 



ENDISPUTE provides a full range of dispute resolution and conflict management 
services. Through offices in Washington, Cambridge, and Chicago, ENDISPUTE: 

* Helps parties design and implement alternatives to traditional htigation. 

* Provides mediation and other resolution assistance for disputes of all sizes. 

* Helps courts and other institutions develop procedures to rapidly and fairly resolve 
large numbers of disputes arising from a single source, product, or subject matter. 

* Assists corporations, government agencies, law firms, and other institutions in 
reducing the costs of conflict through ihe better management of disputes. 

* Advises corporations and other institutions on the management of their legal function. 

* Offers training programs and workshops in negotiation, dispute resolution, litigation 
decision-making, and legal management 

The overall objective is simple: to cut the costs imposed by disputes of all kinds 
without impairing the quaUty of the resolutions achieved. 

Dispute Resolution. To create tailored resolution alternatives for individual cases, 
ENDISPUTE professionals set up procedures yielding faster, less expensive, and better 
resolutions. ENDISPUTE helps resolve large corporate, commercial, and insurance disputes, 
multi-party disputes involving public entities, and disputes involving individual tort claimants 
and small businesses. ENDISPUTE has used minitrials, mediation, settlement conferences, 
neutral factfinding, arbitration, and hybrids of each to achieve cost-effective resolutions. 
Recent activities include assistance in disputes arising out of: 

* Personal injury, product liability, and other tort matters. 

* Malpractice allegations against accounting and law firms. 

* Ventures to recycle municipal waste and build mining facilities. 

* Patent/antitrust matters in chemical and aerospace industries. 

* Antitrust claims arising from price fixing allegations. 

* Construction disputes involving several major projects. 

* Alleged securities-related improprieties. 

* Dissolutions of an investment partnership and a professional firm. 

Dispute Management Analysis. ENDISPUTE also assists clients in the better 
management of disputes, particularly in circumstances involving widespread or complex 
litigation and multiple parties. Recent activities of ENDISPUTE principals include: 

* Helping to develop better procedures for Superfund enforcement and negotiation. 

* Helping to resolve the flood of asbestos claims through: 

Acting as special master to a federal court 

Advising another federal court. 

Helping to design procedures for resolving asbestos claims brought to the 

Manville Personal Injury Settlement Trust. 

* Working to cut an insurer's htigation exposure. 

* Reviewing the coiporate legal function for an investment firm. 

* Advising corporations on the use of alternate dispute resolution techniques. 

Dispute-Related Training. ENDISPUTE provides training in negotiation, dispute 
resolution techniques, litigation decision-making and cost-effective legal management. 
ENDISPUTE principals have designed and participated in more than 200 workshops and 
other training programs for corporations, courts, law firms, and federal and state agencies. 



57 



ADR: MAKING IT WORK 



TABLE OF CONTENTS 

I. What is ADR? 1 

n. Making the ADR Decision 1 

A. Evaluating ADR Potential 2 

B. Choosing an ADR Process 3 

1. Binding vs. Non-Binding Options 3 

a. Binding Options 3 

b. Non-Binding Options 4 

2. Evaluating Barriers To Successful Negotiation 4 

m. What A Neutral Can Do 5 

A. Providing ADR Process Expertise 5 

B. Facilitating Negotiations 6 

C. Assisting in Resolution 7 

Appendix A - Making the ADR Decision: 

A Systematic Approach 8 

Appendix B - ADR Roadmap: 

Comparing the Processes 9 



59 



For additional copies of "Making Alternative 
Dispute Resolution Work: A Guide for 
Practicing Lawyers" or to obtain further 
information about ENDISPUTE, please write 
or call: 



Jonathan B. Marks 

ENDISPUTE, Incorporated 
1820 Jefferson Place, N.W 
Washington, D.C. 20036 
202-429-8782 



Antonia H. Chayes 
or Eric D. Green 
ENDISPUTE, Incorporated 
12 Arrow Street 
Cambridge, Mass. 02138 
617-868-0200 



William E. Hartgering 

ENDISPUTE, Incorporated 
222 S.Riverside Plaza 
Chicago, niinois 60606 
312-648-4343 



61 



ADR: MAKING IT WORK 



I. What is ADR? 

Alternative dispute resolution -- or ADR - processes are those other than 
the most-used primary processes of adjudication and direct negotiation. They seek 
to avoid the uncertainty, unpredictability, delay, and high transaction costs which 
are key problems of traditional litigation. 

ADR processes can be non-binding or binding. They usually 
involve a neutral. 

Some ADR processes - such as mediation and the minitrial - 
- are non-binding. They facilitate settlement by modifying 
the negotiation process to increase the likelihood of 
agreement. 

A mediator, for example, may calm the emotionalism 
surrounding a dispute. A minitrial's neutral advisor 
provides a non-binding opinion about the legal and practical 
strengths and weaknesses of the parties' cases, and thus 
often helps break a negotiation impasse stemming from 
different views of likely in-court outcome. 

Other ADR processes - such as arbitration — are binding. 
Arbitration often can provide a faster and less expensive 
decision resolving a dispute than would be obtained through 
traditional in-court adjudicatory processes. 

ADR processes can be implemented by an o^ hoc arrangement of the 
parties or through an established forum. 

The parties to a dispute can agree through an ad hoc 
arrangement to conduct a minitrial, retain a mediator, or hire 
a former judge to conduct a private settlement conference. 
ADR processes can be set up with the assistance of an 
established private forum such as ENDISPUTE. They also 
can be court-annexed, as in the voluntary and mandatory 
non- binding arbitration programs in many state and federal 
jurisdictions. 



II. Making the ADR Decision 

An ADR process often can assist disputants in reaching a faster, less 
expensive, and more appropriate resolution than if they relied on negotiation and 
adjudication alone. In considering ADR, there are two key questions: 

• Does the dispute have ADR potential? 

If so, what is the best ADR process? 



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62 



Answering these questions requires both a partisan and a joint analysis. 
Each party must assess the dispute to determine whether pursuing ADR is in its best 
interests. If each party decides independently that ADR may be preferable to 
litigation, then the parties must jointly decide what procedure is best and negotiate 
an ADR agreement. 

A decision to use ADR may be made either before or after a dispute arises. 
Often, dispute resolution provisions are included in the contract negotiated by 
parties to a transaction. If there is no contractual provision or if the dispute arises 
independent of contract, consideration of the various mechanisms available to 
resolve a dispute must occur after the dispute arises. 

A. Evaluating ADR Potential 

Assessing ADR potential from a partisan perspective involves 
determining: 

Whether there is a negotiation impasse; 

• Whether it is in the best interests of each party to seek to break the 
impasse. 

Several factors must be considered in making these determinations. 
In complicated disputes, some factors may favor using ADR while others 
may argue against it. 

Factors which may favor pursuing an ADR option include: 

• The expense of litigation. 

• The unpredictability and uncertainty of a litigated resolution. 

• The delay involved in seeking a court decision. 

Factors which may work against agreement about the advantages of 
pursuing an earlier, faster, less expensive resolution include: 

• A serious power or economic imbalance between the parties. 

In such circumstances, the party favored by the imbalance 
may believe it can gain an advantage by pursuing a "how do 
you like it so far?" approach to litigation. 



suits. 



A linkage between the lawsuit at issue and other pending or possible 



When the lawsuit at issue is part of a broader dispute, a party 
may believe that it should spend much more to litigate the 
case than it is "worth" because of the influence which a 
settlement would have on the other cases. 



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63 



• One party as stakeholder. 

Because able to use the money at issue, a stakeholder party 
often can gain a net benefit from delay even when litigation 
costs are considered. 

Where one or more of the negative factors is strong enough to 
override other considerations, it is unlikely that a party will conclude that it 
is in its interest to agree to an ADR procedure. In most situations, however, 
even when there are negative factors, there also will be factors favoring at 
least the exploration of ADR. Rarely is the choice a clear one against even 
considering ADR. 

B . Choosing an ADR Process 

1. Binding vs. Non-Binding Options 

A key consideration in choosing an ADR procedure is 
whether the chosen procedure should be binding or non-binding. 

a. Binding Options. A binding process - some form of 
arbitration -- is likely to be appropriate in 
circumstances where the parties recognize that: 

* They are not likely to be able easily to reach any form 
of negotiated settlement of a dispute, whether the 
negotiations occur directly among themselves or with 
the assistance of a neutral. 

* The in-court litigation alternative is likely to take 
longer or be more costly than an agreed-to arbitration 
procedure. 

* There are likely to be advantages to a binding 
proceeding which is private and presided over by a 
decision-maker or decision-makers with expertise in 
the subject matter of the dispute. 

Many lawyers who negotiate contracts or who litigate 
shun arbitration. They assert, for example, that arbitration 
too often turns into a proceeding which is as time-consuming 
and costly as litigation, is even less predictable, and too 
often ends in a compromise award. But such criticisms are 
better directed at the designers of arbitration clauses and 
procedures than at arbitration itself. Choosing a binding 
procedure which will be both timesaving and cost-effective 
requires the parties or their counsel carefully to tailor the 
agreement to arbitrate. For example, time limits should be 
established and the neutral should be explicitly empowered 
to manage the process to avoid delays and cumulative 
evidence. 



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Copyright 1987 ENDISPUTE. Incorporated -- Please do not reproduce without permission 



64 



b. Non-Binding Options. A non-binding process 

is likely to be appropriate in circumstances where the parties 
recognize that: 

* They have either reached or are likely to reach an 
impasse in trying to negotiate a settlement directly. 

* They can increase the likelihood of breaking such an 
impasse and achieving a negotiated settlement by: 

Changing the terms and conditions under 
which they are negotiating; and/or, 
Obtaining the assistance of a neutral to help 
them find an acceptable settlement. 

2. Evaluating Barriers To Successful Negotiation 

Deciding on an ADR procedure involves identifying the 
barriers preventing successful negotiations and choosing an ADR 
option designed to overcome those barriers. 

a. Identifying Barriers. Barriers which create 
negotiation impasses include: 

* Problems of communication. Negotiation dynamics 
sometimes make it difficult or impossible for the 
parties to be honest with each other, either about their 
views of the facts and law relating to the dispute or 
about what it would take to settle the dispute. 

* Problems of emotion and lack of trust. Events 
leading up to the litigation sometimes sour 
relationships between the parties and lead each to 
suspect both the motives and the representations of 
the other. 

* Problems of the adversary process. Events of the 
litigation itself sometimes further exacerbate the 
hostility of the parties or transform a business 
dispute into a complicated and multi-faceted legal 
battle. 

* Problems of differing views of the underlying facts, 
the applicable law, technical issues, and the likely in- 
court outcome on one or all issues. In almost every 
serious dispute, it is likely that good faith differences 
will exist between the parties' forecasts of likely 
outcomes. These differences often create a 
"settlement gap" that is difficult to bridge. 

b. Matching Options to Barriers. After identifying the 
barriers to resolution of their dispute, some parties may 
decide that the barriers to successful direct negotiation are 
insurmountable. If so, they will usually either decide to 
litigate or choose a binding ADR procedure. 



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65 



Other parties may decide that the barriers which they 
have identified can be overcome. These parties will usually 
decide on a non-binding ADR procedure. 

Each type of barrier can best be overcome or 
removed by a different form of non-binding ADR procedure. 
A useful maxim is, where other things are equal, to favor the 
least complicated approach. 

Barriers involving problems of communication and 
lack of trust can be dealt with, for example, by assisting the 
parties to negotiate more effectively through the use of: 

* A neutral as "confidential listener," 

* A neutral as more traditional mediator who can help 
break down such barriers by: 

Serving as a shuttle diplomat; 
Helping to filter the parties' communications 
with each other. 

Pushing the parties to focus on underlying 
objectives rather than on posturing or staking 
out a position; and, 

Encouraging and assisting in joint problem- 
solving. 

Barriers involving differing views of the law, facts, 
technical issues, and in-court outcomes can be dealt with, for 
example, by adding new, relevant, and credible information 
to the negotiation process through the use of: 

* Joint fact-finding; 

* A neutral investigator, fact-finder, or expert; 

* A settlement conference in which a neutral provides 
input about the value of the case or the merits of the 
parties' positions; 

* A summary jury trial, in which an advisory jury 
renders a non-binding verdict; 

* A minitrial; or 

* A specially tailored "hybrid" procedure. 



m. What A Neutral Can Do 

A neutral can play three distinct but related roles in ADR: 

• Serving as an expert in the ADR process. 

• Facilitating negotiations. 

Moving the parties toward a substantive resolution. 

A. Providing ADR Process Expertise 

Specialized neutral help in choosing and designing an ADR process 
is unlikely to be necessary or cost-effective for low stakes disputes. Parties 
to such disputes may wish instead to rely on available ADR information 
resources. Resources include materials on arbitration rules and procedures. 



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66 



model agreements for minitrials, and simplified or specialized arbitration 
and mediation procedures. Materials can be obtained through organizations 
such as ENDISPUTE. 

As the stakes in dispute and the level of antagonism between parties 
increase, the potential value of obtaining neutral process expertise also 
grows. Especially in larger cases, an ADR procedure is less likely to be 
successful if the parties pay little attention to procedural options and issues 
or rely completely on standardized procedures promulgated by an ADR 
forum. An ADR process is most likely to achieve a cost-effective and fair 
resolution of a high stakes dispute if the parties take care in evaluating ADR 
options and in negotiating the details of the chosen option. Further, success 
in these procedural negotiations can provide impetus to the successful 
resolution of substantive issues. 

In such circumstances, a neutral ADR expert can add value by: 

Getting an ADR process started and keeping it going. Some parties 
are reluctant to agree even to a non-binding ADR process, and may 
view with suspicion any ADR options suggested by another party. 
This makes direct negotiations about ADR options more difficult. 
Thus, the retention of a neutral process expert may be the best - and 
sometimes the only ~ way of getting an ADR dialogue started and 
keeping it going. 

Helping to identify and evaluate ADR options. An ADR process 
intermediary can bring expertise and experience to the identification 
and evaluation of ADR options. Knowledge of what has worked 
and not worked in similar cases can help in identifying ADR 
options, in fine-tuning the option which seems best, in highlighting 
areas where difficulties are most likely to arise, and in bringing ADR 
"precedent" to bear to resolve procedural disagreements. 

• Helping to negotiate details of the process. Negotiating the details 
of and implementing the ADR process may be complicated by the 
same factors which have made direct negotiation difficult or 
impossible ~ lack of trust, emotion, and a fear of giving something 
away by being too honest. An ADR process expert can deal 
effectively and efficiently with these and other problems of 
adversariai negotiations by using the same mediation techniques as 
might be used by a neutral helping the parties move du^ectly to a 
substantive settlement. For example, an ADR expert can put a 
"neutral" proposal on the table after consulting with aU parties. 

B. Facilitating Negotiations 

A neutral can serve as an intermediary to help facilitate 
communication and effective negotiation of a settlement to resolve the 
dispute by: 

• Serving as an intermediary in carrying messages between the 
parties. In the role of "shuttle diplomat," a neutral can act as the link 
between the parties which allows for communication of positions. 
A neutral can help the parties clarify the objectives they wish to 
achieve through resolution of the dispute. In addition, a neutral can 



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67 



help determine whether each party understands the position and 
objectives of other parties. Further, in situations where pertinent 
information is confidential, a neutral can act as the keeper of 
confidences, enabling information to be used in resolution of the 
dispute without requiring disclosure. 

• Helping to filter the parties' communications with each other. While 
performing the role of messenger, the neutral also can act as a filter 
between the parties. In this role, the neutral is able to defuse tension 
between the parties and to develop a primarily cooperative rather 
than a primarily adversarial or vindictive atmosphere. 

• Encouraging the parties to put aside emotions and focus on 
underlying objectives, not on posturing or staking out a position. 

Often a party is too emotionally involved or too adamantly attached 
to a position to focus on the true underlying objectives it wishes to 
achieve. A neutral can raise questions in the minds of the parties as 
to the validity of the positions taken and suggest alternative 
approaches consistent with the parties' true objectives. Both steps 
may facilitate agreement. 

C. Assisting in Resolution 

A neutral can move parties toward a substantive resolution of the 
dispute by: 

• Suggesting appropriate compromises. Although agreements in non- 
binding ADR processes must be the parties', not the neutral's, a 
neutral can help fashion solutions which seek to reconcile the 
parties' expressed interests. At best, such a solution will be 
acceptable to the parties; in many circumstances, it can provide a 
starting point for further negotiations. 

• Offering non-binding views on the merits. A neutral can serve as an 
expert on outcome prediction. For example, a neutral may provide 
input on how a court or jury is likely to decide the case or suggest an 
appropriate settlement value, thus helping the parties toward a 
realistic evaluation of the stakes in dispute. Similarly, a neutral may 
provide the parties with an assessment of the merits of each party's 
contentions and thus help the parties identify their own and the other 
side's strengths and weaknesses. Such opinions — even though 
advisory in nature - can provide a strong incentive to the parties to 
be both careful and credible in their presentations. 

• Rendering a binding decision. If the parties agree to accept the 
resolution reached through an ADR process as binding, a neutral can 
function as a decision-maker. In this role, a neutral listens to all 
sides of a dispute and then renders a decision which is binding on 
the parties. 



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68 



Appendix A ~ Making the ADR Decision: A Systematic Approach 

DOES THE DISPUTE HA VE ADR POTENTIAL ? 

' Is there a negotiation impasse? 

Is it in the interests of the parties to seek now to break it? 



• IF SO, WHAT IS THE BEST ADR PROCESS? 
* A binding process may be appropriate where the parties agree: 



-- They are not likely to be able easily to reach a negotiated settlement. 

-- The In-court litigation alternative is likely to take longer or be more costly than an 

agreed-to binding procedures. 

-- There are likely to be advantages to a binding procedure which is private and 

presided over by a decision-maker or decision-makers with expertise in the 

subject matter of the dispute. 



A non-binding process may be appropriate where parties agree: 



- They are not likely to be able easily to reach a negotiated settlement. 

" The in-court litigation altemative is likely to take longer or be more costly than an 
agreed-to binding procedures. 

- There are likely to be advantages to a binding procedure which is private and 
presided over by a decision-maker or decision-makers with expertise in the 
subject matter of the dispute. 



Barriers to successful negotiation include: 



- Problems of communication. 

- Problems of emotion and lack of trust. 

- Problems of the adversary process. 

- Problems of differing views of the facts, the applicable law, technical issues, 
and the likely in-court outcome on one or all issues. 



* Barriers involving problems of communciation and lack of trust may be 
overcome through the use of a neutral as: 



Confidential listener. 
Shuttle diplomat, 
iviediator. 



* Barriers involving problems of communciation and lack of trust may be 
overcome through the use of: 



- Joint fact-finding; 

" A neutral investigator, fact-finder, or expert; 

- A settlement conference; 
~ A summary jury trial; 

~ A minitrial; or 

- A specially developed "hybrid" procedure. 



CopvriKht 1987 ENDISPUTE, Incorporated - Please do not rcDroduce without permission 



69 



APPENDIX B -- ADR ROADMAP: COMPARING THE PROCESSES 
"PRIMARY" DISPUTE RESOLUTION PROCESSES 



Adjudication 

Non-Voluntary 



Binding subject to 
appeal 



Imposed third-party 
neutral decision- 
maker, with no 
specialized expertise in 
dispute subject 

Highly procedural; 
formalized and highly 
structured by 
predetermined, rigid 
rules 

Opportunity for each 
party to present proofs 
supporting decision in 
itsTavor 



Win/lose result 



Expectation of 
reasoned statement 



Process emphasizes 
attaining substantive 
consistency and 
predictability of results 



Public process; lack of 
privacy of 
submissions 



Arbitration 



Voluntary unless 
contractual or court- 
centered 

Binding, usually no 
appeal 



Party-selected third- 
party decision-maker, 
usually with 
specialized subject 
matter expertise 

Procedurally less 
formal; procedural 
rules and substantive 
law may be set by 
parties 

Opportunity for each 
party to present proofs 
supporting decision in 
its favor 



Compromise result 
possible 

Reason for result not 
usually required 



Consistency and 
predictability balanced 
against concern for 
disputants' 
relationship 



Private process unless 
judicial enforcement 
sought 



Mediation/Conciliation 
Voluntary 

Non-binding 



Party-selected outside 
facilitator, often with 
specialized subject 
matter expertise 



Usually informal and 
unstructured 



Presentation of proofs 
less important than 
attitudes of each party; 
may include principled 
argument. 

Mutually acceptable 
agreement sought 

Agreement usually 
embodied in contract 
or release 

Emphasis on 
disputants' 
relationship, not on 
adherence to or 
development of 
consistent rules 

Private process 



Traditional 
Negotiation 

Voluntary 



Non-binding (except 
through use of 
adjudication to enforce 
agreement 

No third-party 
facilitator 



Usually informal and 
unstructured 



Presentation of proofs 
usually indirect or 
non-existent; may 
include principled 
argument 

Mutually acceptable 
agreement sought; 

Agreement usually 
embodied in contract 
or release 

Emphasis on 
disputants' 
relationship, not on 
adherence to or 
development of 
consistent rules 

Highly private process 



-9- 
Copyright 1987 ENDISPUTE, Incorporated -- Please do not reproduce without permission 



70 



"HYBRID" DISPUTE RESOLUTION PROCESSES 



Private Judging 


Neutral Expert Fact- 
Finding 


Minitrial 


Settlement Conference 


Voluntary 


Voluntary or 
nonvoluntary under 
PRE 706 


Voluntary 


Voluntary or 
mandatory 


Binding but subject to 
appeal and possibly 
review by trial court 


Non-binding but 
results may be 
admissible 


Non-binding (except 
through use of 
adjudication to enforce 
agreement) 


Binding or non- 
binding 


Party-selected third- 
party decision-maker; 
may have to be former 
judge or lawyer 


Third-party neutral 
with specialized 
subject matter 
expertise may be 
selected by the parties 


Third-party neutral 
advisor, often with 
specialized subject 
matter expertise 


Judge, another judge, 
or third-party neutral 
selected by the parties. 


Statutory procedure 
(see, e.g., Cal. Code 
Civ. Proc. § 638 et 
seq), but highly 
flexible as to timing, 
place and procedures 


Informal 


Less formal than 
adjudication and 
arbitration, but 
procedural rules and 
scope of issues may 
be set by the parties 
and implemented by 
the neutral advisor. 


Informal, off-the- 
record 


Opportunity for each 
party to present proofs 
supporting decision in 
its favor 


Investigatory 


Opportunity and 
responsibiUty to 
present proofs 
supporting result in its 
favor 


Presentation of proofs 
may or may not be 
allowed 


Win/lose result 
(judgment of court) 


Report or testimony 


Mutually acceptable 
agreement sought 


Mutually acceptable 
agreement sought; 
binding conference is 
similar to arbitration 


Findings of fact and 
conclusions of law 
possible but not 
required 


May influence result 
or settlement 


Agreement usually 
embodied in contract 
or release 


Agreement usually 
embodied in contract 
or release 


Adherence to norms, 
laws and precedent 


Emphasis on reUable 
fact determination 


Emphasis on sound, 
cost-effective and fair 
resolution satisfactory 
to both parties 


Emphasis on resolving 
the dispute 


Private process unless 
judicial enforcement 
sought 


May be highly private 
or disclosed in court 


Highly private process 


Private process, but 
may be discovered 



-10- 
Copyright 1987 ENDISPUTE, Incoiporated - Please do not reproduce without permission 



71 



lUprlnted with per«i««lon fro» Chewlcal W«ek , August 14, 1985 



AKemative dispute resolution 

— Opening doors to settlements — 



When it comes to resolving business or 
environmental disputes, "in this coun- 
try, there's a widespread belief: 'What 
the hell, let's file a summons and com- 
plaint. That will get their attention, and 
then we can talk.' " says Peter H. Kas- 
kell. senior vice-president of the legal 
program at the Center for Public Re- 
sources (CPR) in New York City, an or- 
ganization devoted to developing alter- 
natives to litigation. But. Kaskell points 
out, "once you're on this adversarj- 
track, and the lawyers feel their assign- 
ment and professional task is to 
win ... the talk comes later, after a lot 
of expense." 

Since the mid-1970s, those costs have 
risen exponentially. The number of mul- 
tipart>- lawsuits is proliferating at an 
alarming rate. "It would have been 
amazing if someone had foreseen 10 
years ago the litigation explosion that 
we have encountered only in the last 
several years, where you have thou- 
sands of claims in a single suit." says 
Robert H. Sand, assistant general coun- 
sel at Allied. "The pileup in the courts 
that results from all this is ver\- recent 
news." This new trend is forcing in- 
creasing numbers of executives, jovem- 
ment officials and en%-ironmentaiists to 
seek less expensive, less divisive ways 
to resolve their differences. 

A continuum. The search has led to 
the development of a whole 
spectrum of methods, 
known collectively as alter- 
native dispute resolution 
(ADR), to defuse adversarial 
relationships and devise co- 
operative solutions to busi- 
ness and environmental 
problems. Those involved in 
ADR describe dispute reso- 
lution techniques as a con- 
tinuum, with formal, court- 
directed resolution at one 
extreme and direct negotia- 
tions between sides, with no 
third party to inten-ene or 
mediate, at the other. In be- 
tween is a panoply of tech- 
niques, ranging from those 
in which a neutral third par- 
ty acts as a mediator with 
power to decide the matter 

28 ClemK:al Week/ August M 19 



and whose decision is binding, to those 
in which a neutral third party acts as a 
discussion facilitator without power to 
render any tv-pe of decision. 

What these techniques are labeled 
"depends on whom you talk to," says 
Milton R. Wessel. general counsel for 

'Unlike a typical negotiation, 
ADR gives the primary 
responsibility to businessmen' 

the Chemical Industrv- Institute of To.xi- 
cology (CUT), and a vocal advocate of 
.A.DR. "There is no dictionan* definition 
of these things. The terms are loose 
[box. p. ■31\ " Because there is no con- 
sensus on just what each form of ADR 
entails, misunderstandings can arise, 
says William R. Drake, deput}- director 
of the National Institute for Dispute 
Resolution (NIDR) in Washington. D. C. 
In short, says John R. Ehrmann, di- 
rector of the science and public policy 
program at the Keystone Center (Key- 
stone. Colo.), a leading ADR organiza- 
tion, "you can really get rwisted up in 
all the jargon and make it more compli- 
cated than it needs to be." The bottom 
line, he believes, is that no matter what 
buzzword is used, ADR, as a "comple- 
ment" to the traditional dispute resolu- 
tion system, "gives people more choices. 

Gould: ■It's not only the dollars " ADR can save, but also staff time 




A company should be able to think 
through the widest range of choices, 
not just litigate." 

ADR is not just a choice, says Gail 
Bingham, director of the program on 
enN-ironmental dispute resolution for the 
Conser%-ation Foundation; it's a choice 
that gets results. According to Bing- 
ham's research, to be published this fall 
in a book entitled Resolving Environ- 
mental Disputes— A Decade of Expe- 
rience, in 133 of 162 disputes that she 
studied, "78% of all the times that peo- 
ple have attempted" mediation or other 
ADR techniques to resolve those dis- 
agreements, meeting "at least once in a 
good-faith effort to reach agreement, 
they reached agreement. Where parties 
reached agreement," she continues, 
"80% of the time, they implemented 
[those accords] fully, 13% partly and 
[in] only 7% [of the cases] did they fail 
to implement the agreements." 

Cost-effective. ADR can succeed in a 
wide range of issue areas, including la- 
bor disputes, business contracts and 
even controversial government deci- 
sions. Those who have tried and used 
ADR successfully to settle their differ- 
ences in all of these areas believe that 
ADR has more to offer than just bring- 
ing the parties to agreement. To begin 
with, says James 'V'. Kearney, a senior 
partner in the law firm of Webster & 
Sheffield (New York City), 
^ which uses ADR to resolve 
I some of its most difficult 
S cases, .ADR can be an "ef- 
t fective way to control litiga- 
tion costs and risks." Those 
costs, notes NIDR's Drake, 
include not only lawyers' 
fees, "which can run as high 
as S300/hour, but also "lost 
investment, lost revenues 
and inflation." 

"Lost opportunities [are] 
a major cost of litigation." 
says James F. Henr}', CPR's 
president. 'This is particu- 
larly true in the chemical in- 
dustry, which is so reliant 
on intellectual properties." 
For example, he recalls, a 
company "called me some 
time ago about a patent dis- 



72 



pute in the high-tech area that had 
them stalemated. They realized that 
their competitors were six months be- 
hind them, and they couldn't remain 
stalemated two to five years without 
losing a major economic opportunity." 

By using ADR to settle a case, all of 
these types of costs can be sharply cur- 
tailed. In one case settled through ADR 
by John Gould, another Webster & 
Sheffield senior partner, the clients 
"saved [approximately] $4 million" in at- 
torneys' fees alone, assuming, he says, 
that the case was "going to go through 
three years for trial and the risk of 
appeal after that." The savings, he 
says, "change from case to case," de- 
pending on the unique facts of the situ- 
ation. "But," he concludes, "if you elim- 
inate two years of litigation in a major 
case,, any client looking at that can fig- 
ure out what that costs." 

Less ill will. "It's not only the dollars" 
that ADR can save, notes Gould. There 
is also the issue of "the diversion of 
your staff from ongoing activities. " Ad- 
ditionally, ADR allows both sides to get 
back to doing business with each other 
more quickly and with less residual ill 
will than in litigation. "The parties," he 
explains, "particularly in large corpo- 
rate deals, frequently want to go back 
to doing business with each other in the 
way that they've been doing business 
for years." 

"In many cases," notes Keystone's 
Ehrmann, ADR "involves the decision 
makers directly in the conflict resoluton 
process rather than their representa- 
tive. Therefore," he continues, "they 
have the opportunity to build under- 
standing and relationships with the oth- 
er parties at the table." The next time 
those individuals sit across from each 
other over a disputed issue, he says, 
"they will have a better ability to deal 
with the situation." 

Furthermore, since ADR requires that 
company executives become involved in 
resolving the controversy, finding a so- 
lution becomes a business objective, 
rather than just another monkey that 
lawyers have to shake off a company's 
back. "It's a structured way of getting 
senior officers from the companies in- 
volved and having them assess both the 
business reality and the likely legal out- 
come at the same time." says John T. 
Subak, group vice-president and general 
counsel for Rohm and Haas. "It gives 
an added dimension to the discussions, a 
balanced view of what the lawsuit 



Accord Associates 

5500 Central Ave., Suite A 

Boulder. Colo. 80301 

(303) 444-5080 

Contact: Susan L. Carpenter 



Administrative Conference of the U.S. 
2120 L St., NW, Suite 500 
Washington, D.C. 20037 
(202) 254-7020 
Contact: Charles Pou, Jr. 



Alternatives to Litigation 

University of San Diego School of Law 

401 W. A St.. Suite 1400 

San Diego. Calif. 92101 

Contact: Barbara Price 



American Arbitration Assn. 

MOW. 51 St. 

New York, N.Y. 10020 

(212) 484-4000 

Contact: Constance O'Sullivan 



Center for Conflict Resolution 

George Mason University 

4400 University Or. 

Fairfax. Va. 22030 

(703) 323-2038 

Contact: Henry C. Barringer. Director 



Center for Negotiation and Public P( 

520 Statler Office BIdg. 

Boston. Mass. 02116 

(617)482-8660 

Contact: Thomas J. Scott. President 



The Center for Northern Studies 

Town Hill 

Wolcott, Vt. 05680 

(802) 888-4331 

Contact: Oran R. Young, Director 



Center for Policy Research 

1720 Emerson St. 

Denver, Colo. 80218 

(303) 837-1555 

Contact: Jessica Pearson, Director 



Center for Public Resources 

680 Fifth Ave. 

New York, N.Y. 10019 

(212)541-9830 

Contact: James F. Henry, President 



The Conservation Foundation 
1717 Massachusetts Ave.. NW 
Washington. D.C. 20036 
(202) 797-4300 
Contact: Gail Bingham 



Council of Better Business Bureaus, Inc. 

1515 Wilson Blvd., Suite 300 

Arlington. Va. 22209 

(703) 276-0100 

Contact: Dean W. Oeterman 



Dispute Resolution Information Center 
Box 6000 

Rockville, Md. 20850 
(301)251-5194 
Contact: Ellen Mowbray 



Endispute 

1333HSt.,NW, Suite 460 

Washington, D.C. 20005 

(202) 898-0146 

Contact: Jonathan B. Marks, President 



Environmental Conflict Project 

2036 Dana BIdg. 

School of Natural Resources 

University of Michigan 

Ann Arbor, Mich. 48109 

(313) 763-9022 

Contact: Karen V. Gottlieb 



Environmental Mediation International 

1775 Pennsylvania Ave., NW, Suite 475 

Washington, D.C. 20006 

(202) 475-0457 

Contact: Robert E. Stein, President 



ERM-A/lcGlennon Associates 
283 Franklin St. 
Boston, Mass. 02110 
(617)357-4443 
Contact: Peter Schneider 



Forum on Community and the Environment 

422 Waverly St. 

Palo Alto. Calif. 94301 

(415) 321-7347 

Contact: Jeanne Litts. Administrator 



Illinois Environmental Consensus Forum 

University of Illinois, Chicago 

2085 Taylor 

Chicago. III. 60680 

(312) 996-5758 

Contact: Kevin Croak, Director 



Institute for Environmental Negotiation 

University of Virginia 

Campbell Hall 

Charlottesville, Va. 22903 

(804)9241970 

Contact: A. Bruce Dotson 



Keystone Center 
P.O. Box 606 
Keystone, Colo. 80435 
(303) 468-5822 
Contact: John Ehrmann 



The Mediation Institute 
605 First Ave., Suite 525 
Seattle, Wash. 98104 
(206) 624-0805 
Contact: Laurie K. Rush 



National Academy of Conciliators 
5530 Wisconsin Ave., Suite 1 130 
Chevy Chase, Md. 20815 
(301)654-6515 
Contact: Jacques Nacson 



National Institute for Dispute Resolution 

1901 L St.. NW, Suite 600 

Washington, D.C. 20036 

(202) 466-4764 

Contact: William R. Drake 



New England Environmental Mediation Canter 

108 Lincoln St. 

Boston, Mass. 02111 

(617)451-3670 

Contact: Roaemery Noonan 



Public Mediation Service 

P.O. Box 6109 

Falls Church, Va. 22046 

(703) 534-1526 

Contact: Roger Richman. Director 



Society of Professionals in Dispute Resolution 

1730 Rhode Island Ave., Suite 909 

Washington, D.C. 20036 

(202) 833-2188 

Contact: Laurene Huges Church, Director 



Triangle Associates 

461 Colman Building 

811 First Ave. 

Seattle, Wash. 98104 

(206) 583-0655 

Contact: Alice Shorett, President 



Western Network 

1215 Paseode Peralta 

Santa Fa, N.M. 87501 

(505) 982-9805 

Contact: John A. Folk-Williams. President 



Alternative dispute resolution organizations 
addressing the CPI's con cerns* 

\*On environmental disputes, regulatory rule / 

making; government, corporate/buiinass issue*. / 

Source: Dispute Resolution Resource Directory, / 
1984, National Institute for Dispute Resolu- / 

tlon, Washington, DC. / 



73 



might look like. It puts into one room 
both the lawyers and the businessmen. 
But unlike a t\-pical negotiation, it gives 
the primary responsibility to the busi- 
nessmen, which is where it belongs." 

That is "the message of ADR." con- 
tends Kaskell. "When you have a $10 
million claim, lawyers talk about money, 
whereas businessmen can talk about 
new deals." And, he says, "as disputes 
often arise out of contracts, this is real- 
ly a business relation." Unfortunately, 
concedes Kaskell, despite growing sup- 
port within the business community, not 
enough people have heeded ADR's mes- 
sage, and the "use of ADR techniques is 
far below potential." 

ADR's devotees point to several rea- 
sons why ADR is not catching on quick- 
ly. "A lot of lawyers are reluctant to 
use these things," notes Wessel. That's 
because ADR is a relatively new pro- 
cess, says Gould. "Lawyers are afraid 
that there is a risk that they and their 
clients will be naive — that they'll go in, 
and they'll lay their facts on the table, 
but the other side won't lay its facts on 
the table." The result, he adds: "The 
mini-trial [ADR procedure] leads no- 
where, because although they go into it 
with good intentions, it does not result 
in a settlement, and then they're back 
in the courthouse and they've already 
put all their cards on the table." 

Also, notes Kearney, "ADR is difficult 
to arrange when you don't have a rela- 
tionship upon which to base" the mutu- 
al trust that is necessary when parties 
enter into ADR discussions. For exam- 
ple, he explains, companies that are al- 
ready doing business together have a 
vested interest in maintaining that rela- 
tionship once the dispute comes to an 
end. Thus they are more likely to enter 
into ADR than disputants whose first 
real contact is adversarial, as is the sit- 
uation in toxic tort cases such as the 
Agent Orange or Bhopal litigation. 

Tit for tat The nature of the U.S. 
litigation process is also a factor, as- 
serts Gould. "You have officers at a 
company to whom the dispute means a 
great deal. They frequently believe it 
will affect their careers adversely." 
Plus, he says, "added to those officers 
you have lawyers who are involved in 
the competitive give-and-take of the pro- 
ceeding," he explains, which can lead to 
a case of tit for tat. " 'That fellow 
served me with motion papers on Fri- 
day night,' one attorney will say," 
Gould adds, which means spending the 
weekend drafting a response. Then, he 
says, the lawyer will retaliate by say- 
ing, "I'm not going to think about talk- 
ing about alternative dispute resolution 

30 Chemical Week/August 14. 1985 



for another month until the flow, the 
momentum is quite good for our side." 
Sometimes, there is fear that the op- 
position will sense weakness in a case if 
a company suggests an .A.DR approach. 
"The party who raises his or her hand 
and says, 'Why don't we think of .\DR'." 
looks weak. Consequently, they don't do 
it," says Gould. Instead, he continues. 

'What is new in the chemical 
industry' is applying mediation 
to environmental disputes 

"they go to court, they file the lawsuit, 
and they go full steam ahead." 

At least 113 companies have found 
what they believe is a way around this 
roadblock. They are subscribers to a 
new program, conceived by CPR's legal 
program, called the "Corporate Policy 
Statement on Alternative Dispute Reso- 
lution," also known as the "ADR 
pledge." The ADR pledge commits each 
signatory company to exploring ADR as 
a method of first resort, if a dispute 
arises between companies on the sub- 
scriber list. To subscribe, the chief exec- 
utive officer (CEO) and chief legal offi 
cer of the corporation must sign the 
agreement. If no accord can be reached 
then they are free to take their griev- 
ance to court. 

"This relieves the onus of being the 
first to propose settlement discussions, 
says CPR's Kaskell. "The practical ef- 
fect of the statement," explains Robert 

Drake: ADR must become more widely accepted. 




A. Butler, chief litigation counsel for 
Union Carbide, one of the signatories, 
"is that any company that participates 
in the pledge process can and will raise 
ADR without fear that it will be regard- 
ed as a sign of weakness. It also gives 
companies enhanced confidence and en- 
couragement that if they raise .A.DR as 
a possibility it will be considered." 

The .-\.DR pledge can also be a way to 
nip litigious behavior in the bud within 
one's own organization, elaborates Kas- 
kell. He notes that "the request to initi- 
ate litigation t\-pically does not come 
from the CEO, but from other execu- 
tives, group presidents, divisional gener- 
al managers. Often, those people are 
younger and more bellicose and closer 
to the situation — and more emotionally 
involved." The company's general coun- 
sel, though, has experienced the head- 
aches a major lawsuit between two or 
more companies involves. If that gener- 
al counsel has a statement signed by 
the CEO that the firm will use ADR 
when a dispute arises, he is, Kaskell 
says, "in a perfect position to say, 'This 
is against company policy. We have to 
try to work this out first' " 

No sign of weakness. Over the 
course of 1984 and early 1985, he says, 
"the great majority" of CPR's member- 
ship has subscribed to the pledge. Kas- 
kell believes that signing the pledge has 
not just been a paper promise. There 
have "been general counsels who have 
indicated that they've used our pledge 
as a basis to say to other companies, 
'Let's sit down and talk,' " reports Kas- 
kell. "I've even been told of situations," 
he continues, in which a company that 
has signed the pledge, "in a dispute 
with a company which they knew full 
well had not signed," has used it to 
"smooth the way, to open the door to 
discussions" by asking the other side, 
" 'We've adopted this policy— have 
you?' " What that posture does, says 
Kaskell, is show the other side that 
" 'we'll talk settlement with anyone — 
and it isn't a sign of weakness.' " 

Much of industry's support, says Kas- 
kell, was drummed up by the Chemical 
Manufacturers Assn. (CMA) through a 
letter sent by its president, Robert A. 
Roland, to CMA's members, urging 
them to sign the pledge. CMA's position, 
says David F. Zoll, CMA's vice-president 
and general counsel, is that "ADR has 
merit in its own right. If our industry is 
seen as generally inclined to consider 
ADR in intercorporate disputes, that 
reputation may have a spillover effect 
when we deal with Washington issues 
in convincing people that we are serious 
about trying to cooperatively solve 



74 



Alternative dispute 
resolution: A lexicon 

Alternative dispute resolution (ADR) 

mechanisms or techniques generally 
are intended to be an alternative to 
the traditional court process. They 
usually involve the use of impartial 
interveners referred to as third parties 
(no matter how many parties are in- 
volved in the dispute) or neutrals. 
Some define ADR more broadly to 
mean finding better ways to resolve 
disputes, including those that have not 
reached— and may never reach— the 
courts or other official forums. 
Conciliation is an informal process in 
which the third party tries to bring 
the disputants to agreement by lower- 
ing tensions, improving communica- 
tions, interpreting issues, providing 
technical assistance, exploring poten- 
tial solutions and bringing about a ne- 
gotiated settlement, either informally 



or, in a subsequent step, through for- 
mal mediation. 

Mediation is a process in which the 
mediator assists the disputants to 
reach a negotiated settlement of their 
differences. Mediation is usually a vol- 
untary process that results in a signed 
agreement that defines the future be- 
haxior of the parties. The mediator is 
not empowered to render a decision. 
The mini-tiial is often used after com- 
panies in a dispute have begun litiga- 
tion, but before the case has come to 
trial in court. A typical mini-trial 
might entail a period of limited discov- 
ery after which attorneys present 
their best cases to managers with au- 
thority to settle and, most often, a 
neutral ad\nser who may be a retired 
judge {see below) or other lawyer. 
Private judging is a procedure in 
which a judge, on stipulation of the 
parties, can refer a pending lawsuit to 
a private neutral party for trial with 
the same effect as though the case 



were tried in a courtroom. The verdict 
can be appealed through the regular 
court appellate system. Parties may 
also engage in private judging without 
a referral from a court of law and 
may agree beforehand whether the 
judge's verdict will be binding. 
Regulatory negotiation (reg/neg) or 
public policy dialogue is aimed at 
bringing together representatives of 
business, public interest groups and 
government, with the help of a neu- 
tral, to e.xplore regulatory matters. 
The dialogue is intended to identify 
areas of agreement, to narrow areas 
of disagreement and to identify gener- 
al areas and specific topics for 
negotiation. 

Source: Paths to Justice: Major Pub- 
lic Policy Issues of Dispute Resolu- 
tion, Report of the Ad Hoc Panel on 
Dispute Resolution and Public Policy; 
prepared by the National Institute for 
Dispute Resolution, October 1983. 



problems in that arena as well." Zoll 
emphasizes that "our interest in encour- 
aging ADR is to further a trend that is 
already under way." 

Sometimes, try as a company might, 
ADR does not work out. In other situa- 
tions, ADR may not be applicable. "We 
have suggested ADR in a couple of dis- 
putes," says Rohm and Haas's Subak. 
"So far, we have not been able to con- 
vince the other side to use it." In one 
instance, the other side "felt we were 
simply too far apart in our positions to 
make it worthwhile." However, Subak 
says, "we think we will use it and use it 
successfully" in the future. 

Guidelines. For those instances in 
which companies think that ADR may 
be a viable alternative, a number of 
techniques and ADR centers are avail- 
able (table, p. 29). Some centers publish 
reference materials to help companies 
conduct their own ADR proceedings. 
For example, CPR has set up guidelines 
on ADR procedures for multiparty Su- 
perfund site cost allocation, and loss al- 
location in toxic tort cases. It also has 
drafted a model mini-trial agreement 
for business disputes . The Keystone 
Center in Colorado has developed a "Sit- 
ing Process Handbook," outlining an 
ADR approach for siting hazardous 
waste management facilities. 

Of the techniques applicable to busi- 
ness disputes, one of the most promis- 
ing is the mini-trial — an out-of-court 
procedure, used with or without an im- 
partial third party to guide the parties 



(box, above). Henry says that mini-trials 
have been successful "in reducing legal 
costs and expediting the procedure, and 
[in] giving a better result than in court. 
Business executives, having a knowl- 
edge of business procedures, come up 
with a win/wan result, which the court 

'A lot of lawyers . . . are 
afraid the other side won't 
lay its facts on the table' 

would love to do but can't because of 
the adversary structure of its proceed- 
ings, which give a win/lose result." 

Attorneys who have been involved in 
mini-trials say the technique is most of- 
ten used after litigation has com- 
menced, but well before the matter 
comes to trial in court. "Mini-trials oc- 
cur generally after six months to one 
year of trial preparation [and] discov- 
ery"— that phase of litigation during 
which both sides collect information 
from each other, says Kearney. "Then," 
he explains, "each side knows the 
law ... the risks [of engaging in ADR or 
pushing on with the legal case] become 
more clear," the issues better defined. 

Preparing to offer the option of a 
mini-trial to the other side of a dispute 
is not a matter only for the lawyers, 
Gould stresses. The executives involved 
in the conflict must become active par- 
ticipants. So must officers or managers 
within the corporation who are not di- 
rectly involved in the dispute. Once 



those individuals are chosen, says 
Gould, "we then talk to the other side," 
asking them if they would be interested 
in having "a situation where we would 
come in— the lawryers from XYZ Corp.— 
and we would present our side of the 
case to officers from our company and 
from your company, with a view that 
when this process is over, you will have 
heard our side, we'll have heard your 
side, and people who are not involved in 
the fight or dispute on each side will 
then go off and meet with each other 
and try to resolve it." 

'Rent-a-judge.' The mini-trial might 
take a number of forms, even going as 
far as holding a full "mock trial," com- 
plete with "jurors" who are members of 
the companies in dispute with each oth- 
er. Sometimes, Gould notes, "the two 
sides hire a retired judge to sit in the 
middle and run [the mini-trial] procedur- 
ally," as he or she would in a real court- 
room. This is sometimes referred to as 
"private judging," or "rent-a-judge." 

Again^ as in other ADR techniques, 
reminds CIIT's Wessel, "private judging 
is a term that has a lot of variation." 
But in essence, he says, private judging 
is a "form of arbitration," in th^t the 
mini-trial private judge "will in fact ren- 
der a decision for you." However, Wes- 
sel says, "sometimes, the private judge 
acts really as a sort of adviser, media- 
tor, conciliator," who will say "'here's 
what will happen to you if. . . ." 

Allowing a private judge in a mini- 
trial to act as an arbitrator, rather than 



August 14. 1985/Chemical Week 



75 



a mediator, can present problems, 
warns Gould. The judge's opmion. 
whether binding or not, he says, could 
influence the outcome of the negotia- 
tions. "Practically speaking," Gould 
adds, "when the two sides go off to 
make a decision on how to settle, if a 
former judge says to them, 'I think .\BC 
Corp. has a better argument than XYZ 
Corp.,' that has an impact on the way 
that case gets resolved." 

Mini-trials, while a relatively recent 
development in the .A.DR arsenal, are 
not the newest dispute resolution meth- 
od on the block. "What is new," says 
NIDR's Drake, particularly "in the 
chemical industry," is the application of 
mediation and other forms of negotia- 
tion to public policy and environmental 
and regulatory disputes. The .A.DR buzz- 
word of choice for this phenomenon is 
"reg/neg," which stands for regulatory 
negotiation or negotiated rule making. 

Reg/neg. The "heart" of the reg/neg 
approach, explains Ehrmann, is the 
bringing together, usually by a govern- 
ment entity like the Environmental Pro- 
tection Agency (EPA), of all groups that 
might be interested in, or adverse to, a 



regulation or set of rules that the agen- 
cy has to promulgate. In lieu of imple- 
menting the regulation and then allow- 
ing everyone opposed to it to take the 
agency to court, says Ehrmann, the 
agency will bring all sides together to 
discuss the matter beforehand. 

Such discussions, Drake says, are 
"important to the industry', public agen- 

CMA's Zoll: 'Our interest in 
encouraging ADR is to further 
a trend already under way' 

cies and the environmental groups" that 
become involved. By bringing in inter- 
ested parties prior to promulgation, he 
e.xplains, "you work out consensus on 
regulations." He adds that, particularly 
with "the sensitive and controversial 
rule makings, the federal agencies in- 
volved are frequently sued after the 
rule is promulgated." After going to 
court over a regulation, he notes, it's 
much more difficult to come back to the 
negotiation table. 

The agency with the most experience 
in this area is EPA. which has estab- 



lished a separate reg/neg program, al- 
though the Occupational Health and 
Safety Administration and other agen- 
cies have dabbled in reg/neg, too. "I'm 
very excited about what we've been 
able to do," says Chris Kirtz, director of 
EPA's regulatory negotiation project. 

Under Kirtz's guidance, and with the 
help of outside, professional negotiator/ 
facilitators, EPA has successfully nego- 
tiated two regulations. One of these is a 
rewrite of the emergency pesticide ex- 
emptions under Section 18 of the Feder- 
al Insecticide, Fungicide and Rodenti- 
cide Act (FIFRA). Those negotiations 
involved both CMA and the National Ag- 
ricultural Chemicals Assn. (NACA), as 
well as the U. S. Dept. of Agriculture, 
environmental organizations and pesti- 
cide users. This group had four months 
in which to negotiate all the provisions 
of the Section 18 regulations. 

Almost a record. "NACA was selected 
as a principal" in the negotiations, re- 
calls Earl C. Spurrier, NACA's vice-pres- 
ident of regulatory affairs, who headed 
a subcommittee within the discussions. 
It was, he says, "the first time that [all 
these groups] sat around the table in a 
harmonious relationship. We were able 
to disagree without being disagree- 
able." And at the end of the four 
months, the group had drafted a pream- 
ble and the regulations, "which," he in- 
sists, "is almost record breaking." 

The draft regulations already have 
been published in the Federal Register, 
and a 60-day comment period on the 
draft ended recently. Now, Spurrier 
says, EP.A. is going over "our comments 
on the comments. EP.A. will put it into 
the final rule-making language," which 
will then go into the Federal Register 
"as a final rule in January 1986." Usual- 
ly, Spurrier notes, "it takes the better 
part of two to three years" from the 
time a regulation is proposed until it 
gets to this final stage. Using reg/neg, 
the whole process will have taken 17-18 
months from start to finish. 

"We've saved at least six months to a 
year," Spurrier boasts, partly by get- 
ting out of the way, up front, the com- 
ments that, under normal procedures, 
would be submitted after the fact. In 
that way, "we took away about 90% of 
the trash that EP.A. would have had to 
wallow through," he points out. Be- 
sides, he says, "I enjoyed the procedure. 
I'd do it again, and I'd recommend [reg/ 
neg] for anybody with a controversial" 
government issue to work through, 

EPA is hoping that such enthusiasm 
for its reg/neg process will have a 
"spillover etFoct." says Milton Russell, 
as.sistaiit administrator for policy, plan- 



76 



ning and evaluation. Kirtz's program is 
already feeling this within EPA itself. 
With two successful reg/neg proce- 
dures "in the bag," he says, "we have 
our own resources demanding" that 
Kirtz help them with their own reg/ 
negs. "The first year," he reminisces, 
drumming up support "was like [the la- 
bors of] Sisyphus." Now, he predicts, 
"in the ne.xt five to sLx months, we'll 
get three more [reg/negs] under way." 
No panacea. Kinz and Russell e.xpect 
that EP.A. will institutionalize this ADR 
process and turn it into a standard op- 
tion for promulgating regulations. Kirtz 
points out that there are 200-250 regula- 
tions under development within the 
agency at any one time. However, he is 
careful to say, "I don't want people out 
there to think that we think this is a 
panacea. We have no illusions that this 
is appropriate for all or even most of 
our rules." Rather, says Russell, ADR 
will be used in the "small percentage" 
of rule makings that lend themselves to 
that process. But, Kirtz says, every suc- 
cessful reg/neg saves the agency mon- 
ey and time. "Our e.xperience sug- 
gests," he sums up, "that looking 
ahead, these gains will be significanL" 



"In my view," says Conservation 
Foundation's Bingham, "the objective 
of reg/neg, mini-trials, mediation and 
all other ADR techniques "is consensus 
building." ADR as a method of problem 
solving and as a movement "has really 
progressed over the past 10 years. 
. . . What's coming," she predicts, is the 
incorporation of "that understanding 

The objective of mini-trials 
and all other ADR techniques 
'is consensus building' 

into public decision-making institu- 
tions," such as EPA's reg/neg project. 
"I think that's the most e.xciting thing 
that's going to happen in the ne.xt 10 
years." 

That evolution will take place in sev- 
eral areas at the same time. ADR's 
champions believe that within a few 
years, concepts about how to negotiate 
complex disputes over such issues as 
Superfund apportionment^ hazardous- 
waste-facility siting and toxic tort 
cases — and the techniques to do so — 
will become more sophisticated. Negoti- 
ators and mediators will also become 



more proficient as the "profession of 
mediation grows and matures," predicts 
Bingham, noting that the membership 
of the Societj' of Professionals in Dis- 
pute Resolution "grew 100% in the last 
year and a half." 

While mediators and techniques be- 
come more sophisticated, the ne.xt gen- 
eration of lawyers and business profes- 
sionals will be learning about ADR from 
professors racher than from e.xperience 
after years in the field. What that will 
produce, Bingham hopes, is a "whole 
generation predisposed to dispute reso- 
lution as a method of first resort" 

"When we can get to the point where 
[ADR methods] are just another set of 
tools in a field with a spectrum of possi- 
bilities," says Ehrmann, "we'll really 
have gotten where we want to be." But 
to get there, says Drake, ADR must be- 
come more widely accepted. "The most 
direct way" for that to happen, says 
Ehrmann, is for executives, lawyers and 
government officials to e.xperience suc- 
cessful ADR for themselves. "But," con- 
cludes Ehrmann, "word of mouth is the 
best marketing tool." D 

LAURIE A. RICH, luith 
Kenneth Jacobaon in New York City 



77 



Reprinted with persnission from Harvard Law Review, 
Volume 99, No. 3, pp. 668-684, Copyright 198 6 



COMMENTARY 

ALTERNATIVE DISPUTE RESOLUTION: PANACEA OR 

ANATHEMA? 

Harn' T. Edwards* 

The Alternative Dispute Resolution (ADR) movement has seen an 
extraordinary transformation in the last ten years. Little more than 
a decade ago, only a handful of scholars and attorneys perceived the 
need for alternatives to litigation. The ADR idea was seen as nothing 
more than a hobbyhorse for a few offbeat scholars. Today, with the 
rise of public complaints about the inefficiencies and injustices of our 
traditional court systems, the ADR movement has attracted a band- 
wagon following of adherents. ADR is no longer shackled with the 
reputation of a cult movement. . 

At worst, ADR is merely a highly fashionable idea, now viewed 
as worthy of serious discussions among practitioners and scholars of 
widely diverse backgrounds and professional interests. At best, the 
ADR movement reflects a serious new effort to design workable and 
fair alternatives to our traditional judicial systems. There can be no 
doubt, however, that the ADR movement has drawn wide public 
attention. During the past five years, there have been literally scores 
of books, articles, conferences, bulletins, newsletters, and new course 
offerings on ADR. Mechanisms for alternative dispute resolution are 
now being established throughout the United States, with well over 
one hundred and fifty minor dispute mediation centers in almost forty 
states,^ and court-annexed arbitration is now actively used in both 
state and federal courts.^ These are indeed heady times for those in 
the ADR movement. There is reason for concern, however, that the 
bandwagon may be on a runaway course. 

Popularity and public interest are not sure signs of a quality en- 
deavor. This is certainly true of ADR, because the movement is ill- 
defined and the motives of some ADR adherents are questionable. It 
appears that some people have joined the ADR bandwagon, without 
regard for its purposes or consequences, because they see it as a fast 
(and sometimes interesting) way to make a buck. It has also been 
suggested that some of those people who promote ADR as a means 



♦ Circuit Judge, United States Court of Appeals for the District of Columbia Circuit. Cornell 
University, B.S., 1962; University of Michigan, J.D., 1965. The author wishes to acknowledge 
the research assistance given him by Charles Blanchard in the preparation of this Commentary. 

* Edelman, Institutionalizing Dispute Resolution Alternatives, 9 Just. Sys. J. 134, 136 
(1984). 

^ Sixteen states and ten federal district courts have authorized court-ordered arbitration 
programs. See Background and Status, Dispute Resolution F., Aug. 1985, at 4. 

668 



78 



1986] ALTERNATIVE DISPUTE RESOLUTION 669 

to serve the poor and oppressed in society are in fact principally 
motivated by a desire to limit the work of the courts in areas affecting 
minority interests, civil rights, and civil liberties. And it is sometimes 
claimed that there are those who subscribe to the ADR movement 
because they view efficient and inexpensive dispute resolution as an 
important societal goal, without regard for the substantive results 
reached. If the ADR movement prominently reflects such thinking 
then it is unclear whether the movement is a panacea for, or is 
anathema to, the perceived problems in our traditional court systems. 
My principal concern is that, in our enthusiasm over the ADR 
idea, we may fail to think hard about what we are trying to accom- 
plish. It is time that we reflect on our goals and come to terms with 
both the promise and the danger of alternatives to traditional litiga- 
tion.^ In this essay I will offer some views on the direction this 
reflection should take. 



I. The Problem in Perspective 

If alternative dispute resolution mechanisms are most significant 
as substitutes for traditional litigation, then it is important to assess 
the specific problems facing our judicial system that ADR seeks to 
address."^ Fortunately, the literature on this subject is so extensive 
that it is unnecessary here to rehash the issues or to resolve the ongoing 
debate as to whether we are truly an overly litigious society.^ It is 
enough to note that, in recent years, the cost of litigation has sub- 
stantially increased and the number of cases filed in state and federal 
courts has mushroomed. For example, between i960 and 1980 the 
number of filings per capita in federal district courts nearly doubled.^ 
Although our judicial systems recently have been adjusted to meet 



^ By "alternative" dispute resolution I mean to focus on any ADR system that resolves 
disputes pursuant to methods other than traditional litigation or government regulatory action. 
Some alternatives — such as court-annexed arbitration — act as adjuncts to courts. Others, 
however, use private fora not connected in any way to government institutions. 

'♦ This Commentary will focus on the caseload problems of our judicial systems. However, 
I recognize that ADR is also responding to other problems with the legal system. See Abel, 
The Contradictions in Informal Justice, in The Politics OF Informal Justice 310 (R. Abel 
ed. 1982); Edwards, Hopes and Fears for Alternative Dispute Resolution, 21 Willamette L. 
Rev. 425 (1985). 

5 See, e.g., Edwards, The Rising Workload and Perceived "Bureaucracy" of the Federal 
Courts: A Causation-Based Approach to the Search for Appropriate Remedies, 68 Iowa L. Rev. 
871 (1983); Galanter, Reading the Landscape of Disputes: What We Know and Don't Know 
(And Think We Know) About Our Allegedly Contentious and Litigious Society, 31 UCLA L. 
Rev. 4 (1983); Miller & Sarat, Grievances, Claims, and Disputes: Assessing the Adversary 
Culture, 15 Law & Soc'y Rev. 525 (1981); Trubeck, Sarat, Felstiner, Kritzer & Grossman, The 
Costs of Ordinary Litigation, 31 UCLA L. Rev. 72 (1983). 

6 See Galanter, supra note 5, at 37. 



79 

670 HARVARD LAW REVIEW [Vol. 99:668 

this massive increase in caseload,^ it is somewhat pollyanish to view 
the addition of still more judges as an acceptable solution to our 
society's ever increasing demand for judicial resources. 

Of course, it is misleading to look at statistics on court congestion 
as conclusive evidence of the faults of judicial process because, in 
state and federal courts, about ninety percent of all cases are settled 
without adjudication.^ Although (or maybe because) case filings are 
high, we already have an "alternative dispute resolution" system that 
emphasizes negotiation rather than adjudication. Unfortunately, our 
experiences with litigation-settlement negotiations have been far short 
of satisfactory. Recent research reveals widespread dissatisfaction 
among trial attorneys, with a "staggering" eighty-five percent agreeing 
that the ad hoc processes now employed in connection with litigation- 
settlement negotiations could be significantly improved. The parties 
involved complain that compromise comes too late, is too expensive, 
and is too stressful.^ 

While there is obvious room for improvement in the way we settle 
cases — perhaps by encouraging a more active judicial role in settle- 
ment negotiations — it is probably naive to think that this alone will 
fully solve the problems with our burgeoning caseloads. Many judges 
simply lack the mediation skills necessary for the successful resolution 
of cases through compromise. There is, unfortunately, no obvious 
match between the characteristics that make for excellent judging and 
the skills required for successful mediation. Additionally, we cannot 
depend on private litigants to settle cases satisfactorily on their own; 
too many lawyers view the suggestion of compromise as an admission 
of weakness and therefore delay the initiation of negotiations with the 
hope that the onus of suggesting settlement will fall on opposing 
counsel. ^° Also, lawyers often become so convinced of the merits of 
their clients' positions that they may have wholly unrealistic expec- 
tations regarding the outcome of a case, thereby lessening the possi- 
bilities of successful early negotiation. For these reasons, we should 
be highly skeptical of existing trial settlement processes as we search 
for viable mechanisms for alternative dispute resolution. Parties will 



7 See id. 

* A study of cases in five federal district courts and at least one state court in each federal 
district found that less than 8% of the cases went to trial. In 22.5% of the cases, the judge 
either dismissed the case or rendered judgment on the merits summarily. The remainder were 
resolved by settlement. See Trubeck, Sarat, Felstiner, Kritzer & Grossman, supra note 5, at 
89. 

•^ See W. Brazil, Settling Civil Suits i (1985). According to Brazil, "the process through 
which the parties eventually reach agreement often is difficult to launch, then can be awkward, 
expensive, time-consuming, and stressful. The route to resolution can be tortuously indirect 
and travel over it can be obstructed by emotion, posturing, and interpersonal friction." Id. at 
44. 

•0 See id. at 45. 



80 



1986] 



ALTERNATIVE DISPUTE RESOLUTION 



671 



continue to settle cases, but it is unlikely that the settlement process 
will improve if we rely solely on the ad hoc negotiation processes 
currently in use. 

Given the inadequacy of traditional responses to the manifold 
problems with our court systems, it is not surprising that many com- 
mentators believe that we must develop new approaches for dispute 
resolution in lieu of litigation. Generally, I concur, but I think that 
there are two critical threshold inquiries that we must make before 
we leap to embrace any system of ADR. First, we should consider 
whether an ADR mechanism is being proposed to facilitate existing 
court procedures, or as an alternative wholly separate from the estab- 
lished system. Second, we must consider whether the disputes that 
will be resolved pursuant to an ADR system will involve significant 
public rights and duties. In other words, we must determine whether 
ADR will result in an abandonment of our constitutional system in 
which the "rule of law" is created and principally enforced by legiti- 
mate branches of government and whether rights and duties will be 
delimited by those the law seeks to regulate. Perhaps the best way 
to conceptualize these critical issues is by reference to a simple matrix: 



ADR in 
Court 



ADR Outside 
Court 



Private Disputes 


Public Disputes 


Private Disputes Resolved 
by Adjuncts to Courts 


Public Law Issues 
Resolved by Adjuncts 
to Courts 


Private Disputes Resolved 
by Independent 
Mechanisms 


Public Law Issues 
Resolved by Independent 
Mechanisms 



Obviously, many disputes cannot be easily classified as solely pri- 
vate disputes that implicate no constitutional or public law. Many 
commentators have tried to distinguish "public" and "private" disputes; 
but, in my view, no one has been fully successful in this effort. The 
problem is that hidden in many seemingly private disputes are often 
difficult issues of public law. In this Commentary, I offer no easy 
solution to the definitional problem of public/private disputes. I do 
suggest, however, that there are a number of public law cases that 
are easily identifiable as such. These include constitutional issues, 
issues surrounding existing government regulation, and issues of great 
public concern. The latter category might include, for example, the 
development of a legal standard of strict liability in products Hability 
cases. ^^ Although less easily identifiable than constitutional and reg- 
ulatory issues, such issues of great public concern can be accommo- 



'• See, e.g., Escola v. Coca Cola Bottling Co., 24 Cal. 2d 453, 150 P.2d 436 (1944) (Traynor, 
J., concurring). 



81 
672 HARVARD LAW REVIEW [Vol. 99:668 

dated so long as ADR mechanisms are created as adjuncts to existing 
judicial or regulatory systems, or if these issues can be relitigated in 
court after initial resolution pursuant to ADR. ^^ 

My purpose in creating a public/private law matrix is not to give 
court administrators a fool-proof method of assigning cases to appro- 
priate dispute resolution systems. ^^ Instead, the matrix helps to illu- 
minate those aspects of ADR that should give rise to the greatest 
concern. In particular, we must focus on the quadrant of the matrix 
that would allow for the resolution of public law disputes in ADR 
systems that are totally divorced from courts. ADR mechanisms fall- 
ing within this quadrant, I believe, are wholly inappropriate. 

In the remainder of this Commentary I will explore the hazards 
and possibilities presented by each quadrant in the matrix, beginning 
with two quadrants that involve the use of ADR as an adjunct to our 
traditional court system. 

n. The Role of ADR Within the Traditional Court System 

One way to deal with the caseload problem is simply to divert 
cases from litigation by limiting the jurisdiction of the courts. There 
are two difficulties with such a "demand-side" approach. First, lim- 
iting the jurisdiction of courts may result in diminished rights for 
minorities and other groups, whose cases in areas like civil rights, 
prisoner suits, and equal employment are likely to be the first removed 
from the courts. Second, the jurisdiction-limiting solution fails to 
recognize the potential role of ADR within the traditional court sys- 
tems. If we rush to limit the substantive jurisdiction of our courts, 
we may lose our best opportunity to experiment with the promise of 
ADR. 

Implicitly recognizing these two difficulties, many ADR advocates 
have suggested the use of ADR as an adjunct to federal and state 



'^ Cf. Alexander v. Gardner- Denver Co., 415 U.S. 36 (1974) (holding that title Vll claims 
should be heard de novo in federal court even after the claims are heard in grievance arbitration). 

'^ The recent Supreme Court decision in Thomas v. Union Carbide Agric. Prods. Co., 105 
S. Ct. 3325 {1985), is not inconsistent with my central thesis that public law should not be 
resolved by private ADR mechanisms. Thomas held that article III does not prohibit Congress 
from selecting binding arbitration as the mechanism for resolving compensation disputes among 
participants in the Federal Insecticide, Fungicide, and Rodenticide Act's pesticide registration 
scheme. In Thomas, arbitration was chosen by Congress pursuant to standards that it set. 
There was no danger that private parties would decide issues of public law. 

Thomas is also noteworthy because it employed a public/private distinction. It was, however, 
using the distinction as developed in article III jurisprudence. This Commentary employs the 
public/private distinction for an entirely different purpose. While article III is concerned about 
the exercise of judicial power by the political branches of government, my concern is that public 
law issues may be resolved by nongovernmental bodies. Nevertheless, the complexity of the 
public/private distinction, as exemplified by Thomas, reinforces my belief that decisions to use 
ADR should be made on a case-by-case basis. 



82 



1986] ALTERNATIVE DISPUTE RESOLUTION 673 

court systems. ADR would not replace litigation, but instead would 
be used to make our traditional court systems work more efficiently 
and effectively. Because the vast majority of all court cases are settled 
rather than adjudicated, many commentators believe that ADR has 
an enormous potential for reducing caseloads by enhancing the effec- 
tiveness of settlement; at the same time, because ADR would be under 
the careful supervision of courts, there is far less danger that ADR 
would become a nefarious scheme for diminishing the rights of the 
underprivileged in our society. 

There are several ways in which the enormous setdement-enhanc- 
ing potential of ADR can be tapped. Many lawyers insist that a 
neutral, penetrating, and analytical assessment of a case greatly en- 
hances the prospects of a successful negotiation by offering a realistic 
view of what could transpire if a case goes to full-blown adjudica- 
tion.^"* Furthermore, because too many lawyers view the suggestion 
of compromise as an admission of weakness, mechanisms that place 
the onus of suggesting settlement negotiations on neither party have 
tremendous potential for initiating settlement at much earlier stages 
in the litigation. -^^ 

Indeed, many private litigants and courts already use ADR because 
it offers such a neutral assessment and requires parties to think about 
compromise at earlier stages in the litigation. For example, several 
corporations have pioneered the resolution of large and complicated 
business disputes by mini-trials. ^^ Although the result is nonbinding, 
mini-trials have been tremendously successful in settling cases quickly. 
Business litigants frequently find the opinion of a third party invalu- 
able in deciding how best to settle many quite complicated cases. The 
mini-trials also have the virtue of forcing corporate litigants to con- 
front the weaknesses in their cases. ^^ Unfortunately, however, mini- 
trials are a realistic option only for the wealthy, and the success of 
mini-trials may result from the fact that they are initiated by the 
parties, who thereby show their predisposition to settle. 

Court-annexed arbitration — quickly being adopted in many state 
and federal courts — may offer a "poor man's mini-trial." Many 



•* See W. Brazil, supra note 9, at 44-46. 

•5 See id. at 45. 

'6 The first use of the mini-trial was a patent infringement action brought by Teiecredit 
against TRW. After three years of litigation, the two parties held a nonbinding arbitration 
before executives of both corporations and former Judge James Davis of the Court of Clsums. 
Thirty minutes after the hearing, the parties settled. See Green, Recent Developments in 
Alternative Forms of Dispute Resolutions, 100 F.R.D. 512, 514-16 (1983). Judge Lambros has 
introduced a "summary jury trial" modeled after the mini-trial. Lambros, The Summary Jury 
Trial and Other Alternative Methods of Dispute Resolution, 103 F.R.D. 461 (1984). 

•^ The mini-trial has been successful in settling disputes of several major corporations in- 
cluding Control Data Corp., Burroughs Corp., Gillette Corp., and Texaco. See Green, supra 
note 16, at 517. 



83 
674 HARVARD LAW REVIEW [Vol. 99:668 

jurisdictions have compulsory arbitration for particular classes of cases 
— primarily tort and contract disputes with potential damage awards 
below an established dollar ceiling. Critically, therefore, court-an- 
nexed arbitration is most often used to resolve private disputes rather 
than difficult public law issues. ^^ Indeed, by diverting private dis- 
putes to arbitration, federal and state courts may be able to expend 
more time and energy resolving difficult public law problems. 

The experience in most state court-annexed arbitration programs 
is very encouraging. A large percentage of the disputants accept the 
arbitrated settlements and express satisfaction with the arbitration 
process. In Pittsburgh, for example, court-annexed arbitration ends 
three-quarters of all cases without appeal, and the median time to a 
hearing is three months, in marked contrast to an eighteen-month 
wait for trial. ^^ In Michigan, although disputants accept the arbitra- 
tion award in less than half of the cases, only seven percent of all 
cases in which the arbitration award is rejected actually go to trial. ^° 

Of course, in the excitement over the docket-clearing potential of 
court- annexed arbitration, we must not make the mistake of ignoring 
the quality of arbitration outcomes. The evidence on this is sparse, 
but a study of the Pittsburgh program did find that most participants 
viewed arbitration outcomes as fair.^^ Additionally, court-annexed 
arbitration has many of the characteristics of adjudication — most 
notably the application of rules of law by neutral decisionmakers. 

Unfortunately, the success of arbitration programs has been less 
than uniform. The seventh amendment right to a jury trial requires 
that arbitrated settlements be nonbinding, unless the parties agree 
otherwise. 22 j^ cases seen to be very important to the litigants — 
whether for monetary reasons or otherwise — losing parties are rarely 
willing to accept the result of arbitration as long as a trial de novo 
remains available and they have so little to lose by resorting to full- 
blown litigation. Only if parties agree beforehand to waive their jury 
rights can arbitration be fully effective. ^^ 



•* Obviously, some small tort and contract disputes can often present novel and important 
public law issues. The danger of this occurring, however, is much less than that which would 
occur if constitutional and regulatory cases were arbitrated. Furthermore, court-annexed arbi- 
tration ensures the parties eventual access to the courts, where novel public law issues can be 
resolved. 

'9 See Institute for Civil Justice, An Overview of the First Five Program Years 
36 (1983). 

20 See Shuart, Smith & Planet, Settling Cases in Detroit: An Examination 0/ Wayne County's 
"Mediation" Program, 8 JusT. Sys. J. 307, 315 (1983). 

'• Institute for Civil Justice, supra note 19, at 36. 

" The nonbinding nature of court-annexed arbitration has been the key factor permitting 
federal court-annexed arbitration to survive seventh amendment challenge. See New Eng. 
Merchants Nat'l Bank v. Hughes, 556 F. Supp. 712, 714 (ED- Pa. 1983); Kimbrough v. 
Holiday Inn, 478 F. Supp. 566 (E.D. Pa. 1979). 

" Over half of all arbitrated settlements in the Maryland Health Claims Arbitration System, 



84 



1986] ALTERNATIVE DISPUTE RESOLUTION 675 

Even with this problem of finality, court-annexed arbitration has 
increased the ease with which cases are settled. Most parties that 
reject arbitration decisions eventually settle — often earlier than they 
would have in the absence of arbitration. Even if parties do not 
accept the outcome of arbitration, the arbitrator's decision forces both 
parties to focus on a neutral third-party's realistic assessment of the 



C2ise. 



24 



As our experience with court- annexed arbitration demonstrates, 
federal and state courts are striving mightily to accommodate and 
encourage the development of demonstrably effective dispute resolu- 
tion mechanisms, especially in cases involving private disputes. At 
the same time, because these alternatives allow for careful supervision 
by the judiciary, there is less danger that the poor will find no room 
on the docket. And, most importantly, under these ADR mechanisms, 
which function as adjuncts to existing court systems, there is little 
likelihood that we will see the creation or development of public law 
by private parties. By focusing on that quadrant of the matrix offering 
the least concern — the resolution of mostly private disputes by ADR 
systems that act as adjuncts to courts — programs such as court- 
annexed arbitration may diminish the pressure on courts to reduce 
substantive rights in response to perceived or actual excessive case- 
loads. 



III. The Role of ADR as an "Alternative" System 

It is clear, however, that a number of ADR proponents have a far 
more ambitious vision of ADR than that set forth so far. Some, such 
as Jerold Auerbach, seem to favor community resolution of disputes 



for example, are refused by parties who demand a trial de novo. See MacAlister & Scanlan, 
Health Claims Arbitration in Maryland: The Experiment Has Failed, 14 U. Balt. L. Rev. 
481, SOI (1985). Similarly, about 60% of the litigants studied in three federal district courts 
refused arbitrated settlements in the court-annexed arbitration programs adopted by those courts. 
See E. Lind & J. Shapard, Evaluation of Court-Annexed Arbitration in Three Fed- 
eral District Courts 76 (1983). 

2* A study of three federal district court programs found that, in two of the three districts 
studied, the time from filing to disposition decreased as a result of arbitration. In most cases 
this was because arbitration encouraged earlier settlements. See E. Lind & J. Shapard, supra 
note 23, at 76-77- 

In addition, some private groups have begun using agreements designed to prevent litigation 
altogether. IBM and Hitachi, for example, have agreed, as part of a consent decree in a major 
trade secret case, to resolve all future trade secrets disputes by negotiation and arbitration. See 
S. Goldberg, E. Green & F. Sander, Dispute Resolution 545 (1985). Although not court- 
annexed, this type of agreement between two private parties is not troubling because it is 
unlikely to implicate public law issues. 



85 



676 HARVARD LAW REVIEW [Vol. 99:668 

using community values instead of the rule of law.^^ Others, such as 
the Chief Justice, complain that "there is some form of mass neurosis 
that leads many people to think courts were created to solve all the 
problems of mankind," and believe that ADR must be used to curb 
the "flood" of "new kinds of conflicts" (such as "welfare . . . claims 
under the Equal Protection Clause") that have purportedly over- 
whelmed the judicial system. ^^ In either case, these ADR advocates 
propose a truly revolutionary step — the resolution of cases through 
ADR mechanisms free from any judicial monitoring or control. 

If we can assume that it is possible to finance and administer truly 
efficient systems of dispute resolution, then there would appear to be 
no significant objections to the use of even wholly independent ADR 
mechanisms to resolve private disputes that do not implicate important 
public values. For instance, settling minor grievances between neigh- 
bors according to local mores or resolving simple contract disputes by 
commercial norms may lead to the disposition of more disputes and 
the greater satisfaction of the participants. In strictly private disputes, 
ADR mechanisms such as arbitration often are superior to adjudica- 
tion. Disputes can be resolved by neutrals with substantive expertise, 
preferably chosen by the parties, and the substance of disputes can 
be examined without issue-obscuring procedural rules. ^^ Tens of thou- 
sands of cases are resolved this way each year by labor and commer- 
cial arbitration, 2^ and even more private disputes undoubtedly could 
be better resolved through ADR than by adjudication. 

However, if ADR is extended to resolve difficult issues of consti- 
tutional or public law — making use of nonlegal values to resolve 
important social issues or allowing those the law seeks to regulate to 
delimit public rights and duties — there is real reason for concern. 
An oft-forgotten virtue of adjudication is that it ensures the proper 
resolution and application of public values. In our rush to embrace 
alternatives to litigation, we must be careful not to endanger what 
law has accomplished or to destroy this important function of formal 
adjudication. As Professor Fiss notes: 

Adjudication uses public resources, and employs not strangers chosen 
by the parties but public officials chosen by a process in which the 
public participates. These officials, like members of the legislative 
and executive branches, possess a power that has been defined and 



" See J. AuERBACH, Justice Without Law? 138-47 (1983)- However, even Auerbach 
recognizes serious limitations on the use of local values in modern society, see, e.g., id. at 144 
("[Allternatives prevent the use of courts for redistributive purposes in the interest of equality, 
by consigning the rights of disadvantaged citizens to institutions with minimal power to enforce 
or protect them."). 

26 Address by Chief Justice Warren E. Burger, in Minneapolis, Minnesota 4 (Aug. 21, 1985). 

" See S. Goldberg, E. Green & F. Sander, supra note 24, at 189. 

2* See Meyerowitz, The Arbitration Alternative, A.B.A. J., Feb. 1985, at 78-79. 



86 



1986] ALTERNATIVE DISPUTE RESOLUTION 677 

conferred by public law, not by private agreement. Their job is not 
to maximize the ends of private parties, not simply to secure the 
peace, but to explicate and give force to the values embodied in 
authoritative texts such as the Constitution and statutes: to interpret 
those values and to bring reality in accord with them.^^ 

The concern here is that ADR will replace the rule of law with 
nonlegal values. J. Anthony Lucas' masterful study of Boston during 
the busing crisis highlights the critical point that often our nation's 
most basic values — such as equal justice under the law — conflict 
with local nonlegal mores. ^° This was true in Boston during the 
school desegregation battle, and it was true in the South during the 
civil rights battles of the sixties. This conflict, however, between 
national public values reflected in rules of law and nonlegal values 
that might be embraced in alternative dispute resolution, exists in 
even more mundane public issues. 

For example, many environmental disputes are now settled by 
negotiation and mediation instead of adjudication. Indeed, as my 
colleague Judge Wald recently observed, there is little hope that Su- 
perfund legislation can solve our nation's toxic waste problem unless 
the vast bulk of toxic waste disputes are resolved through negotiation, 
rather than litigation. ^^ Yet, 21s necessary as environmental negotia- 
tion may be, it is still troubling. When Congress or a government 
agency has enacted strict environmental protection standards, nego- 
tiations that compromise these strict standards with weaker standards 
result in the application of values that are simply inconsistent with 
the rule of law. Furthermore, environmental mediation and negotia- 
tion present the danger that environmental standards will be set by 
private groups without the democratic checks of governmental insti- 
tutions. Professor Schoenbrod recently has written of an impressive 
environmental mediation involving the settlement of disputes concern- 
ing the Hudson River. According to Schoenbrod, in that case private 
parties bypassed federal and state agencies, reached an accommoda- 
tion on environmental issues, and then presented the settlement to 
governmental regulators. The alternative to approval of the settle- 
ment was continued litigation, which was already in its seventeenth 
year, with no end in sight. ^^ 

The resulting agreement may have been laudable in bringing an 
end to protracted litigation. But surely the mere resolution of a 

29 Fiss, Against Settlement, 93 Yale L.J. 1073, 1085 (1984). 

^0 See J. LuKAS, Common Ground: A Turbulent Decade in the Lives of Three 
American Families 127 (1985); Lukas, Community and Equality in Conflict, N.Y. Times, 
Sept. 8, 1985, at E5, col. 2. 

^» See Wald, Negotiation of Environmental- Disputes: A New Role for the Courts?, 10 Colum. 
J. Envtl. L. I, 8 (1985). 

^2 See Schoenbrod, Limits and Dangers of Environmental Mediation: A Review Essay, 58 
N.Y.U. L. Rev. 1453, 1466-67 (1983). 



87 



678 HARVARD LAW REVIEW [Vol. 99:668 

dispute is not proof that the public interest has been served. This is 
not to say that private settlements can never produce results that are 
consistent with the public interest; rather, it is to say that private 
settlements are troubling when we have no assurgmce that the legis- 
lative- or agency-mandated standards have been followed, and when 
we have no satisfactory explanation as to why there may have been 
a variance from the rule of law. 

In the Hudson River example, we should be concerned if private 
negotiators settled the environmental dispute without any meaningful 
input or participation from government regulators, or if the private 
parties negotiated a settlement at variance with the environmental 
standard that had been established by government agencies. If, how- 
ever, government agencies promulgated the governing environmental 
standards pursuant to legislatively established rulemaking procedures 
(which, of course, involve public participation), and if the private 
parties negotiated a settlement in accordance with these agency stan- 
dards and subject to agency approval, then the ADR process may be 
seen to have worked well in conjunction with the rule of law. Indeed, 
the environmental negotiators may have facilitated the implementation 
of the rule of law by doing what agency regulators had been unable 
to achieve for seventeen years. 

A subtle variation on this problem of private application of public 
standards is the acceptance by many ADR advocates of the "broken- 
telephone" theory of dispute resolution that suggests that disputes are 
simply "failures to communicate" and will therefore jdeld to "repair 
service by the expert 'facilitator.'"^^ This broken-telephone theory was 
implicitly illustrated in a speech by Rosalynn Carter describing the 
admittedly important work of the Carter Center at Emory University 
in Atlanta. The Carter Center recently conducted a seminar that 
brought together people on both sides of the tobacco controversy. 
According to Rosalynn Carter, "when those people got together, I 
won't say they hated each other, but they were enemies. But in the 
end, they were bringing up ideas about how they could work to- 
gether. "^^ 

This result is praiseworthy — mutual understanding and good 
feeling among disputants obviously facilitates intelligent dispute res- 
olution — but there are some disputes that cannot be resolved simply 
by mutual agreement and good faith. It is a fact of political life that 
many disputes reflect sharply contrasting views about fundamental 
public values that can never be eliminated by techniques that en- 
courage disputants to "understand" each other. Indeed, many dispu- 
tants understand their opponents all too well. Those who view to- 



^J C. Krauthammer, Cutting Edges: Making Sense of the Eighties 4-5 (1985). 
J* May, Ex-First Lady Tells of Work of Carter Center, Detroit Free Press, Sept. 13, 1985, 
atSB. 



88 



1986] ALTERNATIVE DISPUTE RESOLUTION 679 

bacco as an unacceptable health risk, for example, can never fully 
reconcile their differences with the tobacco industry, and we should 
not assume otherwise. One essential function of law is to reflect the 
public resolution of such irreconcilable differences; lawmakers are 
forced to choose among these differing visions of the public good. A 
potential danger of ADR is that disputants who seek only understand- 
ing and reconciliation may treat as irrelevant the choices made by our 
lawmakers and may, as a result, ignore public values reflected in rules 
of law. 

We must also be concerned lest ADR becomes a tool for diminish- 
ing the judicial development of legal rights for the disadvantaged. 
Professor Tony Amsterdam has aptly observed that ADR may result 
in the reduction of possibilities for legal redress of wrongs suffered by 
the poor and underprivileged, "in the name of increased access to 
justice and judicial efficiency. "^^ Inexpensive, expeditious, and infor- 
mal adjudication is not always synonymous with fair and just adju- 
dication. The decisionmakers may not understand the values at stake 
and parties to disputes do not always possess equal power and re- 
sources. Sometimes because of this inequality and sometimes because 
of deficiencies in informal processes lacking procedural protections, 
the use of alternative mechanisms will produce nothing more than 
inexpensive and ill-informed decisions. And these decisions nlay 
merely legitimate decisions made by the existing power structure 
within society. Additionally, by diverting particular types of cases 
away from adjudication, we may stifle the development of law in 
certain disfavored areas of law. Imagine, for example, the impover- 
ished nature of civil rights law that would have resulted had all race 
discrimination cases in the sixties and seventies been mediated rather 
than adjudicated. The wholesale diversion of cases involving the legsd 
rights of the poor may result in the definition of these rights by the 
powerful in our society rather than by the application of fundamental 
societal values reflected in the rule of law. 

Family law offers one example of this concern that ADR will lead 
to "second-class justice." In the last ten years, women have belatedly 
gained many new rights, including new laws to protect battered 
women and new mechanisms to ensure the enforcement of child- 
support awards. There is a real danger, however, that these new 
rights will become simply a mirage if all "family law" disputes are 
blindly pushed into mediation. The issues presented extend beyond 
questions of unequal bargaining power. For example, battered women 
often need the batterer ordered out of the home or arrested — goals 
fundamentally inconsistent with mediation. ^^ 

•JS Address by Professor Anthony G. Amsterdam, Judicial Conference, D.C. Circuit (May 
21, 1984), reprinted in 105 F.R.D. 251, 291 (1985). 

^6 As Carol Lefcourt of the National Center on Women and Family Law explains: 



89 



68o HARVARD LAW REVIEW [Vol. 99:668 

Some forms of mediation, however, would protect the public val- 
ues at stake. Professors Mnookin and Kornhauser suggest, for ex- 
ample, that divorce settlements can be be mediated successfully de- 
spite disparities in bargaining power by requiring court review of 
settlements that deviate from a predefined norm.^^ Additionally, some 
disputes that are not otherwise subject to court review also might be 
well suited for mediation. ^^ Many cases, however, may require noth- 
ing less than judicial resolution. At the very least we must carefully 
evcduate the appropriateness of ADR in the resolution of particular 
disputes. 

Even with these concerns, however, there are a number of prom- 
ising areas in which we might employ ADR in lieu of traditional 
litigation. Once a body of law is well developed, arbitration and other 
ADR mechanisms can be structured in such a way that public rights 
and duties would not be defined and delimited by private groups. 
The recent experience of labor arbitrators in the federal sector, who 
are required to police compliance with laws, rules, and regulations, 
suggests that the interpretation and application of law may not lie 
outside the competence of arbitrators.^^ So long as we restrict arbi- 
trators to the application of clearly defined rules of law, and strictly 
confine the articulation of public law to our courts, ADR can be an 
effective means of reducing mushrooming caseloads. Employment 
discrimination cases offer a promising example. Many employment 
discrimination cases are highly fact-bound and can be resolved by 
applying established principles of law. Others, however, present novel 
questions that should be resolved by a court. If the more routine 
cases could be certified to an effective alternative dispute resolution 
system that would have the authority to make some final determina- 
tions, the courts could devote greater attention to novel legal ques- 
tions, and the overall efficiency of an anti-discrimination law might 
be enhanced. "^^ 



The goals of mediation — communication, reasonable discourse, and joint resolution of 
adverse interests — work against the most immediate relief the battered woman requires. 
The goals she seeks are protection from violence, compensation, possession of her home 
without the batterer, and security for her children. Only the judicial system has the 
power to remove the batterer from the home, to arrest when necessary, and to enforce 
the terms of any decree if a new assault occurs. The empirical data now show that the 
therapeutic model for handling battering is ineffective and that firm law enforcement 
including imprisonment is required to deter wife abuse. 

Lefcourt, Women, Mediation and Family Law, 18 Clearinghouse Rev. 266, 268 (1984). 

^^ See Mnookin & Kornhauser, Bargaining in the Shadow of the Law: The Case of Divorce, 
88 Yale L.J. 950, 993 (1979)- 

^8 See R. Abel, The Contradictions in Informal Justice, in The Politics of Informal 
Justice 309 (R. Abel ed. 1982). 

•'^ See, e.g., Devine v. White, 697 F.2d 421, 438-39 (D.C. Cir. 1983) (suggesting that labor 
arbitrators are just as q'?Ufied to interpret statutes governing personnel relations as they are to 
interpret labor contracts). 

^ See Edwards, supra note 5, at 925-26, 930. But cf Getman, Labor Arbitration and 



90 



1986] ALTERNATIVE DISPUTE RESOLUTION 68 1 

In other areas, we could capitalize on the substantive expertise 
and standards developed by well-established ADR mechanisms. For 
example, the experience and standards developed through decades of 
labor arbitration and mediation could prove particularly useful in 
settling disputes between nonunionized employees and their employers 
in cases of "unjust dismissal.""*^ Labor arbitrators have developed 
fine-tuned standards for just-cause terminations, which they could 
easily transfer to the nonunion workplace, thus providing similar 
protection to nonunion employees. Similarly, the expertise developed 
over the years by commercial arbitrators could be used to settle other 
business disputes, which now often require years of litigation. We 
should also encourage more private parties to accept binding arbitra- 
tion voluntarily. Recently, the SEC and the securities industry de- 
veloped a system of securities arbitration used in thousands of secu- 
rities law cases. "^^ If this system is fair to investors and to broker- 
dealers, perhaps we should permit investors to commit themselves by 
contract to binding arbitration. 

Additionally, the qualities of labor arbitration that make it so 
successful in the context of collective bargaining are readily transfer- 
able to other fields of law. The presence of a skilled neutral with 
substantive expertise, the avoidance of issue-obscuring procedural 
rules, the arbitrator's freedom to exercise common sense, the selection 
of arbitrators by the parties, and the tradition of limited judicial 
review of arbitral decisions — factors that make arbitration superior 
to litigation in labor cases — would make arbitration superior to 
litigation in other contexts as well. Although the labor context has 
the benefit of a collective bargaining agreement providing rules not 
subject to arbitrary change by one party, "^^ the experience with federal 
employees demonstrates that arbitration can achieve substantial ben- 
efits even when it is limited to the interpretation of rules imposed 
unilaterally.'^'* Perhaps arbitration could prove useful in moderating 
disagreements between citizens, in resolving grievances of citizens 



Dispute Resolution, 88 Yale L.J. 916 (1979) (suggesting that labor arbitration owes its success 
to the collective bargaining relationship). 

'*• There has been a movement in state courts to protect even nonunionized employees from 
unjust dismissals. See Note, Protecting Employees at Will Against Wrongful Discharge: The 
Public Policy Exception, 96 Harv. L. Rev. 193 i, 193 i (1983); Note, Protecting at Will Em- 
ployees Against Wrongful Discharge: The Duty to Terminate Only in Good Faith, 93 Harv. L. 
Rev. 18 16 (1980). 

*2 See Katsoris, The Arbitration of a Public Securities DispuU, 53 FORDHAM L. Rev. 279 
(1984). In Wilko v. Swan, 346 U.S. 427 (1953), the Supreme Court held arbitration agreements 
between investors and broker-dealers nonenforceable. Under SEC rule 15C2-2, such arbitration 
agreements are illegal. Hence, in order for arbitration to be effective in the securities area, 
either Congress must change the law to permit arbitration agreements or the procedures devel- 
oped by the industry must be attractive to securities plaintiffs. 

♦•^ See Getman, supra note 40. 

^ See Edwards, supra note 5, at 932. 



91 



682 HARVARD LAW REVIEW [\'ol. 99:668 

against social service agencies, and in resolving complaints of prisoners 
over conditions of confinement. 

Finally, there are some disputes in which community values — 
coupled with the rule of law — may be a rich source of justice. 
Mediation of disputes between parents and schools about special ed- 
ucation programs for handicapped children has been very successful. 
A majority of disputes have been settled by mediation, and parents 
are generally positive about both the outcome and the process. "^^ At 
issue in these mediations is the appropriate education for a child, a 
matter best resolved by parents and educators — not courts."*^ Sim- 
ilarly, many landlord-tenant disputes can ultimately be resolved only 
by negotiation. Most tenant "rights" are merely procedural rather than 
substantive. Yet tenants desire substantive improvement in housing 
conditions or assurances that they will not be evicted. Mediation of 
landlord-tenant disputes, therefore, can be very successful — often 
more successful than adjudication — because both parties have much 
to gain by agreement. "^^ 

In both of these examples, however, the option of ultimate resort 
to adjudication is essential. It is only because handicapped children 
have a statutory right to education that parent-school mediation is 
successful. It is only because tenants have procedural rights that 
landlords will bargain at all. 

ADR can thus play a vital role in constructing a judicial system 
that is both more manageable and more responsive to the needs of 
our citizens. It is essential — as the foregoing examples illustrate — 
that this role of ADR be strictly limited to prevent the resolution of 
important constitutional and public law issues by ADR mechanisms 
that are independent of our courts. "^^ Fortunately, few ADR programs 
have attempted to remove public law issues from the courts. Although 
this may merely reflect the relative youth of the ADR movement, it 
may also manifest an awareness of the danger of public law resolution 
in nonjudicial fora. 



IV. Overriding Considerations 

Apart from the issues concerning the appropriate application of 
ADR mechanisms, two additional overriding considerations should 



*^ See L. Singer & E. Nace, Mediation in Special Education: Two States' Expe- 
riences (1985). 

*^ See id. at 15. 

*'' See Janes, The Role of Legal Services Programs in Establishing and Operating Mediation 
Programs for Poor People, 18 CLEARINGHOUSE Rev. 520, 521 (1984). 

** In order to ensure that public law issues are not resolved in private fora, we must permit 
litigants who raise issues of public or constitutional law to use courts even if private ADR 
systems have already settled the dispute. Cf Alexander v. Gardner-Denver Co., 415 U.S. 36 
(1974) (holding that a title VII claimant does not waive his right to proceed in federal court by 
virtue of an adverse decision in grievance-arbitration). 



92 



1986] ALTERNATIVE DISPUTE RESOLUTION 683 

affect the employment of ADR. One has to do with rese£u*ch and 
appraisal, the other with the training and expertise of those who will 
serve as neutrals in ADR systems. 

Because the ADR movement is still in the formative stage, there 
is much to learn about the feasibility of alternatives to litigation. ADR 
is, as yet, a highly speculative endeavor. We do not know whether 
ADR programs can be adequately staffed and funded over the long- 
term; whether private litigants will use ADR in lieu of or merely in 
addition to litigation; what effect ADR may have on our judicial 
caseload; whether we can avoid problems of "second class" justice for 
the poor; and whether we can avoid the improper resolution of public 
law questions in wholly private fora. In light of these and other 
uncertainties about ADR, we should continue to view alternative 
dispute resolution as a conditional venture, subject to further study 
and adjustment. Every new ADR system should include a formal 
program for self-appraisal and some type of "sunset" arrangement to 
ensure that the system is evaluated after a reasonable time before 
becoming permanently established. 

In addition to continued research and appraisal, we must ensure 
the quality of the suddenly emerging ADR "industry." Most partici- 
pants in the ADR movement have joined with pure motives, but this 
is not true of everyone. There are now a number of self-proclaimed 
ADR "experts," with business cards in hand and consulting firms in 
the yellow pages, advertising an ability to solve any dispute. Unfor- 
tunately, those who seek to prey on a new idea may wreak havoc 
with our systems of justice and destroy the legitimacy of the ADR 
movement at its inception. One way to limit this problem is to train 
potential neutrals to ensure their expertise in both substantive areas 
and in dispute resolution techniques. 

There are a number of ADR proponents who appear to believe 
that a good neutral can resolve any issue without regard to substantive 
expertise. Our experience with arbitrators and mediators in collective 
bargaining proves the folly of this notion. The best neutrals are those 
who understand the field in which they work. Yet, the ADR move- 
ment often seeks to replace issue-oriented dispute resolution mecha- 
nisms with more generic mechanisms without considering the impor- 
tance of substantive expertise. "^^ 

Some would respond that judges are generalists and yet we trust 
our state and federal judiciary to resolve a broad range of disputes. 
This argument, however, is deceptive because judges are specialists 
in resolving issues of law. Law aims to resolve disputes on the basis 
of rules, whereas alternative dispute resolution mechanisms turn to 
nonlegal values. ^^ If disputes are to be resolved by rules of law, the 



*^ See Edelman, supra note i, at 138-39- 

so I recognize that legal values may not be wholly absent from ADR mechanisms. See 
Eisenberg, Private Ordering Through Negotiation, 8q Harv. L. Rev. 6^7 i\n-7fs'\ 



93 



684 HARVARD LAW REVIEW [Vol. 99:668 

legal experts designated by our state and federal constitutions — that 
is, the judges — should resolve them. If nonlegsd values are to resolve 
disputes, we should recognize the need for substantive expertise. 

As we reflect, above all we must remember that the overarching 
goal of alternative dispute resolution is to provide equal justice to all. 
"If . . . reform benefits only judges, then it isn't worth pursuing. If 
it holds out progress only for the legal profession, then it isn't worth 
pursuing. It is worth pursuing only if it helps to redeem the promise 
of America. "5^ So long as this remains the paramount goal of ADR 
and we continue to focus on the essential role of public values reflected 
in law, the progress of the ADR movement in the next decade will 
surely surpass that of the last. 

51 Higginbotham, The Priority of Human Rights in Court Reform, 70 F.R.D. 134, 138 (1976). 



95 



(C) Copyright 1987, The National Law Journal 
Reprinted with periDiaaion 



THE NATIONAL 



Monday, April 6, 1987 



LAW JOURNAL 



SPECIAL SECTIOS 




In Ghoosmg ADR, 'the People, 
As Well as the Problem, Count 



Bv Marguerite Millhaiser 

Sf*rrial 10 TV \»tioim1 L*« jounw) 

ONE OF THE KEY features of alter- 
native dispute resolution (ADR) is lis 
adaptability. Rather than forcing ev- 
ery problem into the somewhat narrow 
confines of the tradltionaJ adversary 
system, ADR provides a wider range 
of mechajiisms that allow for greater 
flexibility.. These include mediation, 
minitrial. summary Jury trljd, neutral 
fact-finding and various combinations 
tailored specifically to the case at 
hand. 

The benefits of ADR's flexibility are 
maximired when the choosing of an 
approach lakes into account not only 
the nature of the problem but also the 
realities of the participants and their 
perhaps unspoken interests and 
objectives. 

Most people are familiiir with an in- 
cident thai gave rise to a vicious legal 
battle in one case and was resolved 
through amicable discussion among 
the parties in another. Different means 
of dispute resolution may have been 
used in each case, based not so much 
on the nature of the incident but, more 
likely, on the nature of the peogle in- 
volved in the incident. 

In determining which of the various 
alternative methods of dispute resolu- 
tion to use in a particular case, one 
critical concern is the people involved 
This factor cannot be assessed in ad- 
vance of the particular controversy 
and is likely to remain in a state of flux 
throughout the dispute. Thus, while ai- 
lempis can be made to categorize 
cases amenable lo ADR. they should 

.IJa XiUr,,:s,^r' is c jr.cir.uc- o' lU^'.- 



not be viewed as definitive. Nor should - 
Buch categorizations replace a case- 
by-case analysis that evaluates the cir- 
cumstimces and motivations of the 
parties — institutional or individual — 
involved in or related to the 
controversy. 

These circumstances and motiva- 
tions often provide the greatest Insight 
into the goalt sought and the most ef- 
fective approach to achieving those re- 
sulta. For that reason I suggest, as part 
of the review to determine the ADR 
potential of a case, that a "people anal- 
ysis* be undertaken along with the 
more-typical legal and factual 
analysis. 

The data obtained from this multi- 
faceted review is likely to Illuminate 
the problem more fully, and help the 
parties assess which of the mecha- 
nisms for resolving disputes is likely to 
be most effective. In the process, and 
as a result of focusing on their own 
more-general goals and those of their 
opponents, the participants may even 
rethink their positions and devise 
more innovative approaches to solving 
the problem. 

In short, the availability of ways to 
resolve disputes other than litigation 
provides a degree of flexibility that en- 
ables lawyers and clients to expand the 
scope of their inquiry. Knowing that 
many ways exist through which .to 
seek satisfaction of a client's Interests, 
the lawyer can explore with the client 
aspects of the problem that traditional 
processes may not be equipped to ad- 
dress. Understanding those aspects, 
even more than the particular proce- 
dure usee, rmy often be critical to sat- 
isfaciory resolution of the dispute. 

This ariicie aliempis to provide a 
Iramcucrl v:th:r. which tht broader. 
Con:\r,„rr r.r vnuf J" 



96 



Lhoosmo; JL_>iti£:anon .-iirernaLix'es 



Cuiitinucd from piiiic Jo 
more people-oriented inquiry can be 
conducted. Some of the questions posed 
may seem obvious and already includ- 
ed in many lawyers' repertoire. What 
Is significant In those Instances Is not 
the questions themselves, but the 
weight piven to the answers in deter- 
mining the nature of the problem and 
how best to respond to it. 

It is a matter of learning to put the 
legal issues In whatever position is dic- 
tated by the circumstances. In some 
cases, this may mean that the legal 
issues are virtually irrelevanl, while in 
other cases they may continue to be of 
utmost importance. And often, the sig- 
nificance of the legal considerations 
will lie somewhere between those two 
extremes. An essential skill demanded 
of lawyers is the ability to distinguish 
among these different situations and 
respond accordingly. 
Framework for Case Analysis 

The questions set forth below are in- 
tended to elicit information considered 
important to a broad understanding of 
legal problems. The questions should 
be adaptable to and valuable in almost 



A lawyer should develop 
profiles of the key players 
in the dispute. In some' 
cases, attorney profiles 
should be made "as well. 



every circumstance. The questions 
should be answered from the perspec- 
tives of each party to the controversy. 
This may be done by going through the 
entire series of questions by partici- 
pant or by going through every partici- 
pant in response to each question. . 

Who are the participants with direct 
involvement in the event or events giv- 
ing rise to the controversy, and with 
decision-making authority and/or 
respORSibUityf ■ 

D Name. 

DAge. 

D Physical description. 

D Occupation. 

DJob title and description. 

D Economic situation. 

D Personality. 

D Personal (family) history. 

D Relationship to other participanu. 

D Geographic location. ' 

D Prior history of Involvement In le- 
gal matter. 
- D Obligations to third parties.; , 

Degree of autonomy. 
1 The goal of this question is to devel- 
op a personal profile on the. key play: 
ers at every level of the controversy. In 
some situations, this may also Include 
the lawyers representing the various 
parties. With these profiles It will be 
easier to develop an understanding of 
how the problem is perceived on all 
sides as well as how different respons- 
es, proposals and actions are likely to 
be received. 

People process information against 
a background of prior experience. The 
more that is known about that prior 
experience, the easier It is to anticipate 
reactions and prepare accordingly. 

What entity or organiiatiom, if any, 
are the participants employed byt 

DName. 

D Geographic location.v 

D Size (in pers'-nnel. revenues and 
other relevant aspects;. 

D Description of management. 

O Governing philosophy (as stated 
and in practice). 

D Future plans and expectations. 



_ Hosiery of •.r.volvemcni i.t legal 
problems. 

This question is designed lo develop 
a profile of the organization involved, 
which will provide the framework 
within which the individuals involved 
are operating and an understanding of 
the entity's independent motivations, 
expectations and needs. 

If, for example, a corporation or 
agency has plans that will be affected 
by resolution of the matter, it is impor- 
tant to know and understand the signif- 
icance of those plans. Such knowledge 
will increase understanding of the prol>- 
lem's scope and the range of possible 
solutions. It also may explain why a 
proposal that makes perfect sense on 
its face meets with strong resistance 
from the other side. 

Obviously, If such information were 
known, most lawyers would factor it 
into their decision-making. Thus, ques- 
tions should be asked at the outset to 
develop such facts independent of the 
factual development typically under- 
taken concerning the circumstances of 
the particular matter in questioa 

What is the stated controversy* 

D Facts (when, where, what, how 
and why). 

D Sources of information. 

O Reliability of information. 

D Identity of those with knowledge of 
controversy. 

This is the starting point for most 
inquiries into legal disputes — to find 
out what happened. The difference in 
this context is that client and counsel 
must take the time to answer this 
question from the perspectives of the 
other participants. By forcing consid- 
eration of the events from other sides, 
this process enables counsel and client 
lo develop a broader view of the 
situation. 

What are the stated positions of the 
follotcingf 

D People with direct involvement 

D Those with decision-making au- 
thority and responsibility. 

DThe organizations involvea 

DAny other potential stakeholders. 

Like the third question, the purpose 
of this one is to enable counsel and 
client to develop an appreciation for all 
sides of the problem and thereby un- 
derstand any potential weaknesses in 
their position and the potential strengths 
of the other parties' position(s). In the 
process of answering this question, it is 
helpful to have the client state the case 
as though he or she were the opposing 
party and to have counsel respond as 
though he or she were counsel for that 
party. 

By including the positions of all indi- 
viduals, entities and. potential stake- 
holders it is possible to' identify con- 
flicting Interests on one's own side as 
well as on opposing sides that may af- 
fect how the matter proceeds. 

What are 'the uiiderlying interests ^ 
(real and perceived) of each 'party 
involved^ 

The purpose of this inquiry is to 
Identify objectives that may not be ap- 
parent in the stated positions of the 
participants. For example, there may 
be concerns about reputation or recog- 
nition subsumed in a claim for money 
damages or a desire for retribution in 
a refusal to pay monies owed. When 
these and other unspoken interests are 
articulated, it is easier to identify both 
potential new avenues for seeking solu- 
tions and those avenues that may ef- 
fectively be precluded. 

The Interests analysis encouraged 
here is similar to that used in the "gel- 
ting lo yes" — or principled — ap- 
proach to negotiations. The difference 
is that at this preliminary stage It is 
undertaken in an effort to get a sense 
of the range of possibilities in terms of 
Contin-ued on page IS 



97 



ADR: Accounting for Personality 



Continued from page JT 

subslance and procedure 30 that aji ap- 
propriate course of action can be 
Charted Interests may or may not 
prove to be a basis trom which to pur- 
sue resolution. 

W7ia( are the legal issues raised by 
the controvers]/, and what is the signifi- 
cance of the legal issues to resolving the 
stated controversy and satisfying un- 
derlying interests* 

The first part of this question is self- 
explanatory although again there is an 
advantage to g-oing through the exer- 
cise of stating the Issues from each 
party's vantage point The second part 
of the question is Intended to bring into 
focus the role of the legal issues in re- 
solving the problem. This is designed 
to avoid the tendency to get lost in the 
legal nuances and lose sight of the 
overall objectives. To the extent cer- 
tain legal issues appear controlling, it 
may be advisable to take the next step 
and evaluate the likelihood of success 
on the merits of those issues. 

What practical considerations are in- 
volved, and what is the significance of 
the practical consideratiojis to resolv- 
int/ the stated controversy and satisfy- 
inf underlying intcrestsf 

O Financial considerations. 
DTime limilationa. 
D Physical impedimenta. 
D Geographical constraints. 

The thrust of this question is wheth- 
er there are factors external to the 
merits, the interests and Just about 
"anything else substantive that may af- 
fect how parties respond and behave. 
This would include such things as the 
ability to sustain the cost of litigatioa 
the need to resolve the matter quickly 
(or slowly) to accommodate other cap- 
ital needs, the inconvenience of pursu- 
ing resolution in a particular geograph- 
ical setting, etc. Once these factors are 
identified, an effort should be made to 
assess how they are likely to affect the 
problem and solution. 

What emotional and personality is- 
sues affect the controversy, and what is 
the significance of these issues to re- 
solving the staled controversy and sat- 
• isfying underlying intcrestsf 

i'his question is intended to allow the 
information elicited In response to the 
first question to be integrated with re- 
sponses to -certain subsequent ques- 
tions. It also attempts to Identify 
feelings that are likely to effect the 
ways others are willing to participate 
and respond. 

What means of dispute resotuiion are 
available or can be created to respond 
to the range of considerations identified 
in the responses to the questions above 
and what are the relative advanlages 
and disadvantages of each* 

In response -to-thts inquiry, counsel 
should l>e prepared to Identify the vari- 
ous approaches to dispute resolution 
and hypothesize about how each ap- 
proach may. work under the circum- 
stances of the particular case. These 
■ approaches include proceedings in- 
volving third-party decision-makers 
(such as arbitration and private 
judges), procedures Involving third- 



party facilitators (such as mediation 
and minitnals) and procedures depen- 
dent on the parties themselves (such 
as negotiation). 

This exercise helps the counsel and 
client focus on the degree of outside 
intervention required and the impor- 
tance of precedent and other matters 
likely to determine which approach 
will be most effective. The likely ame- 
nability of other parties to the use of 
alternative procedures should be part 
of this analysis. Consideration also 
should be given to any information 
from other parties that may be neces- 
sary in order to make such an assess- 
ment 

What are the barriers, if any, to com- 
municating with other involved parties 
about the nature of the problem, appro- 
priate dispute resolution mechanisms 
for resolving the problem and solutions 
to the problem* 

This question is designed to provide 
a framework for considering the ap- 
propriate next step. Understanding of 
the avenues of communication avail- 



The legal system now 
functions in a way that 
directs attention toward 
details, often causing a 
loss of overall perspective. 



able to the parties and to counsel Is 
critical for this purpose. An overture 
made to- the wrong' person or at the 
wrong time can doom a case to months 
of unproductive skirmishing. Thinking 
through the communication facets of 
the problem may avoid such a result 



This framework for case analysis is 
Intended to help counsel and client elic- 
it a more complete picture of the prob- 
lem they are seeking to resolve. Once 
that is accomplished, it is incumbent 
on the participants to maintain this 
broad view while at the same time at- 
tending to the specifics of the problem 
Identified. 

Currently, the system functions in a 
way that quickly diverts the attention 
of counsel to details, often causing a 
loss of overall perspective. To the ex- 
tent the Importance of this bird's-eye 
view Is reeognired, arrangements can 
be made to assure that someone — ei- 
ther counsel or client — assumes re- 
sponsibility for maintaining it. 

In addition, attention must be paid 
throughout to the -people" dimension 
as circumstances change and new de- 
cisions are made. Again, acknowledg- 
ment of the significance of this compo- 
nent is a first step In assuring that 
responsibility for analyzing and moni- 
toring Is assumed. While these aspects 
of legal problems are less recognized 
than others, they are Important to the 
determination of solutions as well as to 
the selection of the appropriate means 
of achieving those solutions. 



I 



99 



I 



OVERVIEW OF ALTERNATIVE MEANS OF DISPUTE RESOLUTION 
B. Federal Government 



101 



CPR-Copyright 1987, Center for Public ReBources, to b« 

publithed by Butterworth Legal Publisher., in . book entitled 

containing Legal Costs, ADR Strategiee for Corporati one, Law 

rinas and GoverniBents 1-28-87 



FEDERAL AGENCY USE OF "ADR" 
THE EXPERIENCE TO DATE 

by 
Charles Pou, Jr.^ 



I. OVERVIEW 

We have seen a striking growth in recent years of controversies that manifest themselves 
in governmental proceedings, regulatory and other agency decisions, and court actions 
challenging administrative actions or seeking enforcement of legislative or regulatory 
requirements. Whatever the accuracy of recent statements about a general "litigation crisis," 
one cannot deny that federal agencies are involved in far more disputes than ever as parties 
(even on a per capita basis), ^ and decide far more cases than the federal courts--hundreds of 
thousands annually. Many government decisions--ranging from disability applications to 
civil rights cases, from health and safety enforcement to disputes under hundreds of grant, 
loan and procurement programs — now require resource-intensive procedures that are 
expensive, cause delay, reduce the chances of consensual resolution, and disrupt planning. 
While a few agencies have begun to try ways to shape alternative means of dispute 
resolutions (ADR) to meet their needs, so far these efforts have been rather isolated, diverse 
and decidedly experimental. 

Although many of these agencies were created as a result of disaffection with formal 
court processes and are now criticized themselves as unresponsive and hamstrung by 
procedural red tape,^ surprisingly little thought has gone into their use of "the gentle arts of 
persuasion." Those interested in using ADR techniques have tended to focus their attention 
more on areas such as private labor, family and consumer disputes than on governmental uses 
of ADR. 

To be sure, government agencies created to relieve courts of burdensome litigation may 
already represent a few steps away from formality. More than a decade of environmental 
mediation, and the work of the Federal Mediation and Conciliation Service (FMCS) and the 
Department of Justice's Community Relations Service (CRS), evince some agencies' special 
interest in informal alternatives. A few more agencies, several discussed elsewhere herein. 



^ The author is a staff attorney at the Administrative Conference of the United States 
responsible for its program in dispute resolution. Unless otherwise stated, the opinions 
herein are his and do not necessarily represent the views of the Conference. 

2 The number of lawsuits in which the U.S. was a party rose from 25,000 new cases in 
1970 to 64,000 in 1980. Smith, Alternative Means of Dispute Resolution: Practices and 
Possibilities in the Federal Government, 1984 Mo. J. of Dis. Res. 9, 21. 

^ The ABA's prestigious Commission on Law and the Economy described shortcomings of 
the administrative process in Federal Regulation: Roads to Reform (1979), as follows: 

We share the general view that many administrative procedures are too slow, 
costly and cumbersome. As a result, vital economic interests concerned with 
capital formation, plant modernization and business expansion are severely 
handicapped, and reforms necessary for the protection of workers and 
consumers are too long postponed. These delays and excessive costs have 
resulted, in considerable part, from the fact that administrative procedures, 
initially developed as a safeguard against the threat of regulatory abuse, have 
come to mimic the judicial process, with inadequate regard for the flexibility 
available under existing statutes. Improved procedures will serve all citizens, 
both as consumers and producers. 



102 



- 2 - 



have begun to experiment. Several states have created central dispute resolution agencies to 
increase uses of mediation and related devices in public disputes. Still, the trend is hardly 
uniform--some experiments have been unsuccessful, available processes are not always used, 
and FMCS's efforts to extend its work into non-labor areas have been largely abandoned for 
budgetary reasons. Cases where government agencies now choose to employ ADR techniques 
comprise but a small fraction of their decisions. 

n. ISSUES CONFRONTING AGENCY USES OF ADR 

It is worth noting initially that agencies frequently are not well situated to terminate 
controversies without full judicial or administrative airing of all sides. Disputes involving 
the government often are more complex, and have far greater impact and precedential value, 
than most individual consumer, employment or negligence cases. Where the meaning of civil 
rights law or the validity of a complicated environmental regulatory scheme is at issue, the 
interest in satisfying all parties and avoiding lengthy, expensive controversies may be 
outweighed by a need for authoritative opinions definitively explicating legal responsibilities, 
for open processes to develop social policies, and for executive flexibility. Agency officials' 
efforts to reduce formalization are complicated by a variety of factors that seldom trouble 
private parties; many are apprehensive over ADR because of these uncertainties, as well as 
others like the following: 

(1) Finality often cannot be assured. Proposed regulations, orders, and settlements often 
are subjected routinely to multiple layers of intra-agency and even inter-agency review, 
public comment and judicial second-guessing, a situation that can only discourage other 
parties from negotiating with federal officers whose agreements' finality cannot always be 
assured. Means must be found to ensure that top decisionmakers are involved in, or apprised 
of, sensitive negotiations, and to streamline agency and OMB review of negotiated rules and 
orders. 

(2) Public officials may feel less able to assess their interests and strike bargains in 
some cases than would individuals or corporations, since public duties are often more 
nebulous and susceptible to second-guessing by Congress or the press. To take an extreme 
example, the Rita Lavelle case cast a long shadow on agency settlement motives. More 
mundane, but in some ways more worrisome, is the result of a recent minitrial leading to a 
settlement by the Army Corps of Engineers of a large construction dispute, where subsequent 
criticism by regional personnel spurred an investigation by the agency's inspector general. 
The inspector general's report (not publicly available) reportedly was favorable to the 
process, but such investigations, unless infrequent, would almost certainly chill all parties' 
interest in experimenting with ADR methods in place of seeking the "insulation" of a 
"regular" decision. 

(3) Public access and other procedures imposed by statutes like the Freedom of 
Information Act, Federal Advisory Committee Act, and Administrative Procedure Act create 
duties that can inhibit an atmosphere conducive to negotiation. 

(4) Procedural restrictions are often mandated by court decision. To cite but one 
example, limits on ex parte contacts in all formal proceedings and even some informal 
rulemakings would require changes in judicial doctrine or statute for use of informal 
alternatives. 

(5) The General Accounting Office has prohibited use of outside arbitrators to determine 
liability of the United States, though permitting it where only the amount was subject to 
arbitration. This prohibition has been frequently criticized,^ and the Administrative 



■* E.g.., Administrative Conference Recommendation 86-3, Agencies' Use of Alternative 
Means of Dispute Resolution., 1 C.F.R.§ 305.86-3; Harter, Points on a Continuum: Dispute 



103 



Conference has called on Congress to act in many cases to authorize arbitration of various 
claims. Representatives of Justice and GAO have also suggested that, in some instances, 
delegation of a governmental decision to a private arbitrator may raise constitutional 
questions. 

(6) Budget limits, and procurement procedures imposed by the Federal Acquisition 
Regulation and the Competition in Contracting Act, affect acquisition of the services of 
private mediators and arbitrators. While this has positive aspects--including encouraging 
development of in-house expertise, enhancing inter-agency cooperation (e.g., with FMCS or 
CRS), and ensuring quality work in a field with some "experts" of dubious credentials--it 
may delay, complicate, and even prevent agency action in some instances where ADR would 
help. 

(7) The unclear extent of an agency official's authority to bind his or her successors in a 
settlement adds uncertainty. 

(8) The Attorney General's recent memorandum broadly discouraging use of special 
masters in district court cases involving the government may well have the result of 
inhibiting ADR use in many cases otherwise susceptible to mediation or similar methods. 
Some refinement of its provisions may well be advisable. 

(9) The role of judicial review often presents fundamental problems. A prime tenet of 
ADR is that an initial investment of time and money to resolve a dispute consensually is 
likely to avoid the cost, delay, and other troubles associated with litigation. Many agencies' 
negotiated rules and other settlements, however, will be subject to some judicial review — for 
example, where (1) a court must approve a settlement, (2) a party changes its mind or cannot 
control its constituents, or (3) an affected party not participating directly in the negotiations 
questions the agency's jurisdiction, alleges inadequate representation in the negotiating 
process, or otherwise challenges the legality of the settlement. Should the standard of review 
be relaxed in light of consensus? If so, how does one decide whether representation has 
been adequate and when a consensus has been reached? Can the agency record, which the 
courts use as a basis for review, be curtailed in light of the need for fast, confidential 
negotiations? To what degree should a mediator's confidentiality be protected? The 
implications of these questions are just beginning to be worked out.^ 

It should be clear that ADR techniques are hardly cure-alls and their costs can be 
substantial. Still, they present government agencies with clear opportunities to resolve 
disputes more quickly and satisfactorily, reduce rancor in their dealings with some regulated 
parties, and stand as counterweights to a perilous trend toward procedural complexity. 

in. SURVEY OF GOVERNMENTAL USES 

A. General. Some agencies have begun to use ADR techniques in certain proceedings for 
determining a regulated party's rights or liabilities. Few patterns emerge from these isolated 
cases. Congress, unlike several state legislatures, has not established any central agency with 
the task of furthering use of ADR in government decisions. It has called for arbitration in 
several instances. Some processes are simple, like the Federal Energy Regulatory 

Resolution Procedures and the Administrative Process, 1986 Reports and Recommendations of 

the Administrative Conference of the United States (1987); Behre, Arbitration: A 

Permissible or Desirable Method for Resolving Disputes Involving Federal Assistance and 
Acquisition Contracts?, 16 Public Con. L. J. 67, 92 (1986). 

^ A recent article by Chief Judge Patricia Wald of the U.S. Court of Appeals for the 
District of Columbia Circuit (10 Colum. J. Envtl. L. 1 (1984)) contains a perceptive 
discussion of several, as does a reply by Philip Barter (11 Colum. J. Envtl. L. 51 (1986)). 
The Administrative Conference has addressed some of these issues in its recommendations 
discussed briefly below. 



104 



- 4 



Commission's and Occupational Safety and Health Review Commission's appointment of a 
"settlement judge" for many cases. Others, like the Commodity Futures Trading 
Commission's three-tiered process for reparations cases, are fairly elaborate. Most ADR 
techniques have been applied primarily to smaller, non- precedential disputes, though 
minitrials and negotiated rulemaking have succeeded in several large, controversial cases. 
The Environmental Protection Agency is beginning to explore ways to emphasize ADR in 
enforcement cases and in voluntary cleanups of hazardous waste dump sites. Also, the 
statute authorizing EPA to register pesticides requires the use of arbitrators from an FMCS 
roster to determine the amount of compensation to be paid by an applicant when it makes 
use of the data submitted by a prior applicant. The Grant Appeals Board at the Department 
of Health and Human Services and a few others have provided trained staff mediators to 
help resolve some disputes. The Merit Systems Protection Board, which hears federal 
employees' grievances, now offers a voluntary, simplified procedure that provides a rapid 
decision and possible mediation by presiding officials. The Department of the Navy and the 
Army Corps of Engineers have established minitrial programs, and resorted to them in 
several instances to avoid protracted procurement litigation. The Department of Justice has 
begun a pilot project to use minitrials for some contract cases, though only one dispute has 
been thus handled so far. 

It would be misleading to read too much into the variety of initiatives noted here.® 
Several of them are experimental or have been used only a handful of times. Nevertheless, 
interest is growing in expanding the uses of ADR. The Department of Justice, the 
Administrative Conference, and a few additional agencies have begun exploring other 
possibilities. The National Institute for Dispute Resolution (NIDR) has begun incentive 
grants to stimulate state action. In addition, the ABA Section of Administrative Law has 
established a Committee on Dispute Resolution, and CPR a Governmental Disputes 
Committee. Their efforts should be useful in helping agencies take the next steps to 
implement these methods in the various kinds of activities they engage in. 

B. Government Contracts. Many procurement disputes appear ripe for ADR. The time and 
cost of resolving these cases have risen dramatically in the last decade. Agencies' boards of 
contract appeals, established as relatively quick, uncomplicated alternatives to congested 
courts, are now burdened with vastly increased caseloads and formalized procedures. Cases 
once handled by parties pro se are now heavily lawyered. The boards now generally take 
two to four years, and often longer, to decide claims. 

The minitrial, of course, has been the alternative most commonly used to date in these 
cases. The Army Corps of Engineers and the Navy have each used the process to resolve 
several cases, and the Departments of Justice and Energy and NASA have also used this 
settlement tool with great success. The Corps has also used an informal, internal review 
process and held training sessions for legal personnel in problem solving and dispute 
resolution. Nonetheless, it is noteworthy that, while minitrials have invariably resulted in 
settlements, they have been used in fewer than a dozen of the hundreds of contract cases 
terminated annually in recent years. Clearly, greater efforts are needed to implement the 
minitrial (or a variant), or to supplement it with training or other alternatives. 

Of course, in similar private sector disputes, arbitration is often the methods of choice. 
The Administrative Conference has recognized the value of arbitration in many of these 
cases, calling on Congress to authorize executive branch officials to agree to voluntary 



® Most of the procedures discussed herein as well as those of some additional agencies, 
are described in greater detail in Philip Harter's Points on a Continuum: Dispute Resolution 
Procedures and the Administrative Process, 1986 Reports and Recommendations of the 

Administrative Conference (1987), as well as a variety of other sources. Anyone 

interested in obtaining more detailed information on these programs may contact the agency 
involved or the Office of the Chairman of the Administrative Conference. 



105 



arbitration of many of these disputes. Corps of Engineers officials have expressed interest in 
working with the Conference and others to develop a pilot program for arbitrating some 
construction claims. 

C. Employment/Community. FMCS assists parties to private labor disputes through 
mediation and conciliation, and also mediates complaints brought under the Age 
Discrimination Act. During the 1970's, FMCS also began helping resolve a variety of other 
kinds of cases, but most of these efforts ceased in the 1980's.^ The Federal Services Impasse 
Panel in the Federal Labor Relations Authority works to assist in negotiations between 
agencies and exclusive representatives of federal employees. The Panel has broad discretion 
to fashion appropriate procedures case-by-case, and has made considerable use of 
factfinding, arbitration, "med-arb" and written submissions. CRS has compiled a 
distinguished record mediating racial, ethic and other community disputes, as well as helping 
communities develop local mechanisms for dealing with future disputes. 

The Merit Systems Protection Board, which hears grievances of federal employees, 
sought in 1981 to meet Congress' call for alternative appeals procedures like conciliation, 
mediation, arbitration and similar methods mutually agreeable to the parties in these cases. It 
created a "Voluntary Expedited Appeals Procedure" with a quicker decision, summary 
procedures and possible mediation by an MSPB presiding officer who has received a short 
(albeit special) training course. This process has been used with some success in a few of the 
MSPB's regional offices (especially the Chicago region) and nearly ignored in several others.® 
Following an initial push in 1982 with agencies, employees groups and regional offices, about 
2% of MSPB cases were handled under the expedited system; recent data suggest that this 
rate has since fallen. 

D. Environment. The Environmental Protection Agency has been active recently in taking 
advantage of ADR, and Justice's Land and Natural Resources Division has begun to consider 
its use. Congress has relied on arbitration to resolve claims against a trust fund created 
under the "Superfund" legislation (Comprehensive Environmental Response, Compensation 
and Liability Act). Decisions are made by a Board of Arbitration selected by the 
Administrator of EPA in accordance with procedures used by the American Arbitration 
Association. Structured negotiation techniques have also been used in allocating liability for 
cleanups of some hazardous waste sites under Superfund, partly as a result of 
recommendations to EPA by the Administrative Conference.® EPA has recently issued draft 
guidance encouraging use of ADR in enforcement cases. This guidance, drafted by the 
Office of Enforcement and Compliance Management, includes intra-agency forms and model 
agreements and procedures for implementing available ADR devices. 

E. Consumer Protection. The Commodity Futures Trading Commission offers a civil 
complaint resolution system for customers of commodities brokers. This "reparations" system 
was created by Congress in 1977. An innovative three-tier process was devised by the CFTC 
in 1982 pursuant to new congressional leeway intended to reduce a sizeable backlog and 



^ Barrett, The FMCS Contribution to Nonlabor Dispute Resolution, Monthly Labor Rev 31 
(Aug. 1985). 

® The early experimental program was evaluated, in general favorably, in Adams and 
Figueroa, Expediting Settlement of Employee Grievances in the Federal Sector, Report to the 
Administrative Conference (1985), which found that the process expedited decisions, was 
satisfactory to most parties, and enhanced settlement chances, 

® Recommendation 84-4, Negotiated Cleanup of Hazardous Waste Sites Under CERCLA, 
1 C.F.R. § 305.84-4. 



106 



- 6 - 



encourage informality.^'' The new rules created three available adjudicatory routes: (1) a 
voluntary procedure, (2) a summary procedure for claims less than $10,000, and (3) a formal 
procedure. The voluntary route, which can be used where all parties agree, is the simplest 
and most experimental. No findings of fact or law are expected, and there is no right to 
intra-agency or judicial review. The summary, small claim procedure envisions a paper 
hearing based on submissions in the form of verified statements, or occasionally a telephone 
or oral hearing with opportunity for cross-examination. Both voluntary and summary 
proceedings are conducted by CFTC employees known as "Judgment Officers." The formal 
procedure generally envisions a trial-type proceeding conducted by an ALJ, who may be 
aided by a "Proceeding Officer" to handle discovery and other matters. The rules, which 
contain several other innovations intended to contribute to an expeditious resolution, have 
apparently been only partly successful. In recent years, the CFTC's reparations caseload has 
actually been falling, due largely to statutory changes reducing jurisdiction and the rapid 
growth of the National Futures Association's new arbitration program. 

A few agencies have sought to promote the use of private sector resolution of consumer 
complaints. A controversial Federal Trade Commission consent decree with General Motors 
Corporation, for example, is responsible for a nationwide system of private mediation and (if 
necessary) Better Business Bureau arbitration of auto warranty complaints. The Securities 
and Exchange Commission, of course, oversees a stock exchange program involving consumer 
grievances, and is encouraging implementation of a uniform arbitration code for disciplinary 
cases and disputes between dealers and customers. 

F. Grants. ADR methods like negotiation may be particularly useful in developing and 
enforcing many rules and conditions for administering programs affecting state and urban 
interests, including any federal grant and assistance programs surviving into future budgets. 
States, with their unique position in the federal system, should certainly benefit from 
processes that emphasize participatory decisionmaking by directly affected interests. 
Agencies so far seem not to have tested this technique formally in grant or similar cases, 
though negotiations of various sorts have occasionally been employed in these programs, as in 
development of federal-state agreements concerning the administration of the Supplemental 
Security Income program. Several recent "regulatory reform" bills — none passed- -would have 
relaxed FACA restrictions to reduce obstacles to face-to-face negotiation by agencies with 
state and local governments and their representatives. 

To date, perhaps the most widely noted effort in this area has been that of the 
Departmental Grant Appeals Board at the Department of Health and Human Services to offer 
mediation services to disputants and to train its own personnel in these skills. While this 
mediation alternative has not been widely sought by parties before the Board, Board 
members believe that these skills (in conjunction with related processing tools) have helped 
them reduce a large backlog and decide almost all cases--many involving regulatory and 
accounting questions affecting millions of dollars--in six to nine months. ^^ 

G. Negotiated Rulemaking. Mediation and negotiation methods are beginning to be used, 
and would appear to offer considerable possibilities, in one of the most fundamental 
administrative activities- -agency procedures for adopting rules to implement regulatory 
programs established by Congress. While the thirteen- year effort of the Food & Drug 
Administration to set a standard for the amount of peanuts in peanut butter is admittedly an 
extreme case, environmental, occupational safety, health care, and a variety of other 



^° Marianne Smythe takes a closer look at The Reparations Program of the Commodity 
Futures Trading Commission in a draft report to the Administrative Conference, January 
1987. 

^^ Cappalli, Model for Case Management: The Grant Appeals Board, 1986 ACUS — 
(1987). 



107 



proceedings may go on for years and are routinely challenged in court. Today's rulemaking 
process often encourages parties to dig in and take extreme positions, and provides little 
chance for accommodating conflicting interests. ^^ 

To cut through this red tape, the Administrative Conference has recommended an 
alternative procedure known as "negotiated rulemaking." Under this process, agencies, aided 
by a "convenor" to organize negotiations, identify and bring together representatives of 
affected interests to negotiate, pursuant to specified safeguards, the text of proposed rules 
which are then published for public comment. Negotiated rulemaking is premised on the 
notion that providing opportunities and incentives to resolve regulatory issues through 
negotiation will yield a simpler, quicker process, lead to less litigation, and produce rules that 
are more acceptable to the persons they affect.^^ 

The Environmental Protection Agency, the Occupational Safety and Health 
Administration, and the Federal Aviation Administration have used it, with several others 
(including the Department of the Interior, Nuclear Regulatory Commission, and Federal 
Trade Commission) now starting to experiment with the procedure. FAA and EPA report 
great success with negotiated rulemaking. FAA's recently completed proceeding on flight 
and rest time requirements for airline pilots followed three contentious, and unfruitful, 
attempts over a ten-year period to revise a longstanding rule that had become outmoded. 
EPA has established a Regulatory Negotiation Project and is using the process extensively. 
Their successful use in areas involving the environment and the workplace, where 
controversy has prevailed, suggests that similar mediation efforts would work elsewhere. 
Several state agencies, including some from Alaska, Massachusetts, New Jersey, and 
Wisconsin, are exploring ways to use these procedures. 

H. Tort Claims. The current Administration, the Department of Justice and the 
Administrative Conference have all called for greater use of ADR in tort claims.^"* The 
Conference, though not recommending any radical restructuring of the claims process under 
the Federal Tort Claims Act, has called for a number of changes in agency practices to 
reduce the incidence of "inappropriately adversarial responses to technical deficiencies, 
restrictive policies on information disclosure in connection with the pending claim, and less 
than fully fair and objective approaches to determining the merits and monetary value of a 



^^ Typically, an agency itself will draft a proposed rule and circulate it for public 
comment; it must take these comments into account before publishing a final rule, and 
failure to do so can lead to reversal in court. This process represented a major step forward 
when codified in the Administrative Procedure Act in 1946, but subsequent judicial 
decisions, piecemeal congressional tinkering with additional procedures, and the near 
certainty that any major rule will end up in litigation have rendered it considerably more 
cumbersome and time-consuming than originally contemplated. Closer looks at these 
processes can be found in the Administrative Conference's Guide to Federal Agency 
Rulemaking (1983) and its Federal Administrative Procedure Sourcebook (1985). 

^^ The procedures for negotiated rulemaking, as set forth in Conference 
Recommendations 82-4 and 85-5 (1 C.F.R. § 305), are based largely on a report to the 
Conference by Philip Harter, Negotiating Regulations: A Cure for Malaise (71 Georgetown 
L.J. 1 (1982)), and a subsequent paper by Henry Perritt assessing the first few agency 
experiments with the process. The Conference has encouraged and assisted subsequent 
agency efforts to negotiate rules, organized informal interagency exchanges and hopes to 
publish a sourcebook for negotiated rulemaking that will compile background information, 
suggested procedures, and workable solutions to problems that agencies have encountered to 
date. 

^* An Administration task force, in its Report of the Tort Policy Working Group on the 
Causes, Extent and Policy Implications of the Current Crisis in Insurance Availability and 
Affordability (Feb. 1986) strongly supported ADR. The group, chaired by Richard Willard, 
Assistant Attorney General for the Civil Division, endorsed experimentation with ADR as a 
means to encourage early settlement of tort claims, and called for greater receptivity to 
proposals to use ADR as a way to resolve tort cases. 



108 



claim."^^ Claimants under the FTCA, which authorizes federal agencies to compensate 
persons injured by government actions in a variety of circumstances, are required to present 
claims to the responsible agency as a prerequisite for suit and give the agency a minimum of 
six months in which to settle them. Agencies exercise considerable settlement authority, 
subject to approval by Justice when the amount exceeds $25,000. 

The Conference has recommended several changes in the FTCA to facilitate settlements; 
it has also called for Justice, among other things, not to "exercise its statutory approval 
authority over large administrative settlements in a manner that would tend to discourage 
claims officers from making serious efforts to reach a fair and objective settlement with a 
deserving claimant." The Department's Civil Division, responsible for these matters, has so 
far declined to endorse most of the Conference's recommendations on grounds that they do 
not adequately take into account the true adversarial nature of the tort claim process. While 
a few agencies currently follow these recommended procedures- -as by training claims 
personnel to provide complete information or use nonadversarial methods — much remains to 
be done to reduce doubts as to the fairness of a few agencies' claims handling processes. 

I. State governments. With little fanfare, several states have been considerably more 
imaginative than the federal government in carrying out experiments with these dispute 
resolution methods. Their efforts are too numerous and diverse (and in many cases obscure) 
to discuss in detail here. Of course, public labor mediation or arbitration is more common at 
the state level, as are a variety of other uses for mediation and other ADR skills in particular 
states. These include following negotiated investment strategies to fix budgetary priorities, 
negotiating disputes over siting of industrial, hazardous waste or other facilities, and 
arbitrating some consumer and other claims. In at least five states, central dispute resolution 
agencies have been established, in part due to incentive grants by NIDR. The agencies are in 
Hawaii, Massachusetts, Minnesota, New Jersey and Wisconsin. ^^ Their bureaucratic 
placement, missions and accomplishments vary considerably but they may generally be said to 
do one or more of the following jobs: 

(1) Building agency and public awareness of dispute resolution options. 

(2) Mediating disputes, or setting up mediation and negotiation programs. 

(3) Screening controversies for ADR susceptibility. 

(4) Consulting with interested state agencies. 

(5) Initiating policy dialogues on selected public disputes. 

(6) Suggesting legislation, and compiling rosters. 

Several other state legislatures are considering bills that would establish similar offices 
elsewhere. ^^ 



^^ Recommendation 84-7, Administrative Settlement of Tort and Other Monetary Claims 
Against the Government, 1 C.F.R. § 305.84-7. 

^^ HI - Program on Alternative Dispute Resolution, Office of Administration, Director of 
the Courts. MA - Massachusetts Mediation Service, Executive Office for Administration and 
Finance. MN - Office of Dispute Resolution, Minnesota State Planning Agency. NJ - 
Center for Public Dispute Resolution, Public Advocate's Division of Citizen Complaints and 
Dispute Settlement. WI - Screening panel, chaired by Secretary of Labor, Industry and 
Human Relations. 

^^ Some interesting aspects of the five state offices' limited experience to date are 
discussed in Susskind, NIDR's State Office of Mediation Experiment, Negotiation Journal 
323 (Oct. 1986). 



109 



- 9 - 



IV. THE ADMINISTRATIVE CONFERENCE AND AGENCY DISPUTE RESOLUTION 

The Administrative Conference believes that the costs, delay and inefficiency that 
characterize much federal agency activity today should be treated as important public policy 
concerns in their own right and not merely as procedural afterthoughts to consideration of 
substantive regulatory issues. Therefore, the Conference has begun a program that has 
developed into the first focused look, under either public or private auspices, at the potential 
for use of consensual dispute resolution by administrative agencies. 

The Administrative Conference is an independent agency of the federal government that 
seeks to encourage procedural innovation at both the legislative and agency levels. Chaired 
by a presidential appointee, the 101 members of the Conference include high-level 
representatives of most federal agencies as well as a substantial number of persons from 
outside the government who are scholars, members of the bar, or others having significant 
experience with respect to administrative procedure. Research is conducted by staff and 
consultants, with working committees of the Conference having responsibility for formulating 
recommendations based on research reports, information submitted by agencies and other 
sources, and experience and judgment of the members. The Chairman and his staff are 
continually engaged in efforts to aid agencies in improving their procedures by helping 
implement the recommendations of the Conference, by exchange of information, and by 
acting as a source of advice on good procedure. ^^ 

The Conference's recent efforts have sought to combine (1) a broad approach that might 
be called consciousness-raising among agencies about ADR with (2) more focused work to 
help individual agencies find practical ways to apply ADR approaches to specific regulatory 
problems. This begins with commissioned reports to serve as background for advice to 
agency decisionmakers. The staff and members of the Conference follow up by working 
directly with agency personnel, expert consultants and others who have key roles in 
regulatory programs. The Conference has tried to take advantage of its unique structure, 
which brings together key federal agency personnel with private citizens who are 
knowledgeable about the administrative process, to persuade agency officials to experiment 
with and adopt the procedural innovations encompassed in its recommendations. 

Before undertaking its current ADR program, the Conference had already completed 
research leading to recommendations that advocated negotiating substantive rules and 
Superfund cleanups, making agency handling of tort claims less adversarial, and mediating 
grant disputes. ^^ In its most successful previous ADR-related effort, the development of 
negotiated rulemaking as an important tool for federal agencies, the Conference's pioneering 



^^ The statutory mission of the Administrative Conference is (1) to study all aspects of 
federal agencies' procedures; (2) to identify and analyze the causes of administrative 
inefficiency, delay and unfairness; and (3) to recommend to Congress or to the executive and 
independent agencies specific means of improving the qualify of administrative justice. 5 
U.S.C. §§ 571-76. 

^^ See Recommendations 82-4 and 85-5, Procedures for Negotiating Proposed 
Regulations, 1 C.F.R. § 305.82-4 and .85-5 (1986); 84-4, Negotiated Cleanup of Hazardous 
Waste Sites Under CERCLA, 1 C.F.R. § 305.84-4; 84-7, Administrative Settlement of Tort 
and Other Monetary Claims Against the Government, 1 C.F.R. § 305.84-7; and 82-2, Resolving 
Disputes Under Federal Grant Programs, 1 C.F.R. § 305.82-2. They were based in part on 
the following consultant reports: Philip Harter, Negotiating Regulations: A Cure for 
Malaise; Henry Perritt, Analysis of Four Negotiated Rulemaking Efforts, 75 Georgetown L.J. 
(1986), 1985 ACUS 637; Frederick Anderson, Negotiation and Informal Action: The Case of 
Superfund, 1985 Duke L.J. 261, 1984 ACUS 263; Philip Harter, Points on A Continuum: 
Dispute Resolution Procedures and the Administrative Process; George Bermann, 
Administrative Handling of Monetary Claims: Tort Claims at the Agency Level, 35 Case 
Western L. Rev. 509 (1985), 1984 ACUS 639; Ann Steinberg, Federal Grant Dispute 
Resolution, 1982 ACUS 137, published in Mezines, Stein and Gruff, Administrative Law 
(1983). 



no 



10 - 



research and innovative recommendations, beginning in 1980, provided a major impetus for 
experimentation. 

The first product of the recent program was Conference Recommendation 86-3, based 
largely on consultant Philip Barter's survey of dispute resolution procedures and the 
administrative process. The 1986 recommendation calls, among other things, for legislation 
authorizing voluntary arbitration of many agency disputes, and advises agencies on ways to 
take greater advantage of mediation, minitrials, settlement judges, organizational streamlining 
and other means now that their disposal--but not widely used in the federal government--to 
encourage settlement of many proceedings. It also describes situations where ADR is, or is 
not, likely to be useful. 

In December 1986, the Conference adopted Recommendation 86-8, giving advice to 
agencies on procedures for obtaining the services of ADR "neutrals." This recommendation, 
resulting from a pro bono project by George Ruttinger of the law firm of Crowell & Moring, 
seeks to help agencies broaden the supply of qualified mediators and other neutrals, inside 
and outside the government, to provide services for federal agencies' use of ADR. It advises 
agencies on practical steps; addresses the qualifications that should and should not be 
required; encourages agencies to take advantage of opportunities to train and employ federal 
personnel as neutrals in resolving disputes; and recommends establishment of rosters of 
potential neutrals on which agencies could draw. It also addresses issues involved in 
government agencies' contracting for the services of private parties to serve as neutrals in 
mediations, negotiated rulemakings, minitrials and arbitration. A related Conference 
recommendation on case management as a tool for improving agency adjudication give advice 
to presiding officers and managers on using time guidelines and management systems to deal 
with slow cases, taking steps to define key issues early on, reducing parties' opportunity for 
procedural maneuvering, and using a variety of other methods to limit issues in contention 
and resolve disputes more expeditiously.^^ 

Considerable implementation and related research efforts were initiated in late 1986. 
The Conference has started several additional projects, both general and agency-specific, 
including work with the boards of contract appeals and others on using minitrials in contract 
disputes, with EPA's enforcement staff on its new ADR guidance, and on legislation to 
create a pilot program for arbitrating some contract disputes. Studies now in progress 
include Professor Harold Bruff's exploration of constitutional and other legal issues 
potentially affecting government agencies' use of arbitration; Eldon Crowell's review of 
agencies' experiences with minitrials; and Professor Marianne Smythe's study of the 
innovative three-tiered system that the Commodity Futures Trading Commission uses to 
decide consumer complaints against brokers. Several agencies have contacted the Conference 
to begin exploring possible ADR uses in their programs. The Conference hopes to help 
several agencies develop rosters of potential "neutrals" for various kinds of proceedings, and 
to propose amendments to, or deviations from, the Federal Acquisition Regulation that will 
simplify agency processes for acquiring the services of ADR neutrals from outside the 
government. The Conference also hopes to begin new studies on the experiences of states 
that have established central dispute resolution agencies; the use of settlement judges by the 
Federal Energy Regulatory Commission; and issues presented by greater use of ADR in 
environmental enforcement cases. 

The Conference has also begun to take advantage of its position in the government by 
sponsoring a colloquium bringing together key agency officials, members of Congress and the 
judiciary, and experts from outside the government to discuss the potential for alternatives to 
some traditional agency decisionmaking processes. 



2° Cappalli, Model for Case Management: The Grant Appeals Board, 1986 ACUS — 
(1987); Pou & Jones, Agency Time Limits as a Tool for Reducing Regulatory Delay, Report 
to the Administrative Conference (Sept. 1983). 



Ill 



V. STEPS TO INCREASE AGENCIES' ADR USE 

Opportunities clearly exist to use ADR techniques to greater advantage, as in many tort 
claims and grant disputes, and in programs for enforcing civil penalties. In these and many 
other situations, imaginative resort to ADR methods is indicated. Agencies, the groups that 
deal with them, specialists in dispute resolution, and the academic community should work to 
explore the potential of these alternatives. For example: 

(1) Statutory drafters should selectively encourage agency uses of ADR, including 
arbitration, and in any event should not routinely preclude them by specifying detailed 
procedures. Only a few statutes have actively encouraged ADR usage, such as the Civil 
Service Reform Act of 1978. Much more often they stand as a roadblock to reform. 

(2) In some areas. Congress should relax statutory requirements, like the blanket 
limitation on agency use of arbitration that GAO has found. 

(3) The effectiveness of expanded reliance on negotiation will depend in large part on 
the degree of support or opposition from Congress. Congressional oversight and other 
relevant committees should support and encourage these efforts, recognizing that negotiated 
solutions invariably involve compromises. 

(4) Agencies should (a) seek out ADR opportunities; (b) do far more to obtain training 
for many decisionmakers and lawyers in negotiation and mediation skills, so that they can be 
alert to productive opportunities to use alternatives; and (c) solicit views of regulated persons 
on useful ideas for cutting red tape. 

(5) Courts interpreting statutes with procedural requirements should be flexible with 
agencies' ADR initiatives. Many statutes are purposely vague, their drafters having agreed to 
have the executive agency fill in the contours. In such cases, agency authority to forgo trial- 
type processes should be recognized as long as constitutional rights are protected. 

(6) Federal agencies and observers should seek to examine ADR experiences at the state 
level for lessons and examples. 

(7) Experts in disputes resolution should work with administrative agencies, state and 
local governments, and others to identify particular decisions where informal alternatives 
merit a try, and work informally with interested agencies in putting alternatives into place. 

(8) State and local governments, regulated parties, public interest groups, and others 
affected by agency actions should recognize that their interests are not always furthered by 
routine resort to adversary processes. They should cooperate with federal efforts to develop 
simplified procedures, encourage experimentation, and even exert pressure on agencies. For 
instance, since the APA permits anyone to petition an agency to commence a rulemaking 
proceeding, it may be argued that the petitioner can request the agency to commence a 
negotiated rulemaking. The petition process was largely responsible for the start of one 
successful EPA "reg neg" proceeding. Persons dealing with the government should use such 
tools imaginatively, even if only on the chance that a few agencies will occasionally prove 
receptive and benefit from the experience. They, and ultimately all, should benefit from a 
process whereby federal agency decisions are shaped by their participation and not imposed 
unilaterally. 



113 




ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

21 20 L STREET N.W., SUITE 500 

WASHINGTON, DC. 20037 

(202) 254-7020 



Recommendation 86-3 

OFFICE OF 

THE CHAIRMAN yvgencies' Use of Alternative Means of Dispute Resolution 

Adopted June 20, 1986 

Federal agencies now decide hundreds of thousands of cases annually— far more than do 
federal courts. The formality, costs and delays incurred in administrative proceedings have 
steadily increased, and in some cases now approach those of courts. Many agencies act 
pursuant to procedures that waste litigants' time and society's resources and whose formality 
can reduce the chances for consensual resolution. The recent trend toward elaborate 
procedures has in many cases imposed safeguards whose transaction costs, to agencies and the 
public in general, can substantially outweigh their benefits. 

A comprehensive solution to reducing these burdens is to identify instances where 
simplification is appropriate. This will require a careful review of individual agency 
programs and the disputes they involve. A more immediate step is for agencies to adopt 
alternative means of dispute resolution, typically referred to as "ADR," or to encourage 
regulated parties to develop their own mechanisms to resolve disputes that would otherwise 
be handled by agencies themselves. ADR methods have been employed with success in the 
private sector for many years, and when used in appropriate circumstances, have yielded 
decisions that are faster, cheaper, more accurate or otherwise more acceptable, and less 
contentious. These processes include voluntary arbitration, mandatory arbitration, 
factfinding, minitrials, mediation, facilitating, convening and negotiation. (A brief lexicon 
defining these terms is included in the Appendix to this recommendation.) The same forces 
that make ADR methods attractive to private disputants can render them useful in cases 
which a federal agency decides, or to which the government is a party. For these methods to 
be effective, however, some aspects of current administrative procedure may require 
modification. 

It is premature to prescribe detailed procedures for a myriad of government activities 
since the best procedure for a program, or even an individual dispute, must grow out of its 
own needs. These recommendations therefore seek to promote increased, and thoughtful, use 
of ADR methods. They are but a first step, and ideally should be supplemented with further 
empirical research, consultation with experts and interested parties, and more specific 
Conference proposals. 



Recommendation 



A. General 

1. Administrative agencies, where not inconsistent with statutory authority, should adopt 
the alternative methods discussed in this recommendation for resolving a broad range of 
issues. These include many matters that arise as a part of formal or informal adjudication, in 



114 



Page 2 
rulemaking,^ in issuing or revoking permits, and in settling disputes, including litigation 
brought by or against the government. Until more experience has been developed with 
respect to their use in the administrative process, the procedures should generally be offered 
as a voluntary, alternative means to resolve the controversy. 

2. Congress and the courts should not inhibit agency uses of the ADR techniques 
mentioned herein by requiring formality where it is inappropriate. 

B. Voluntary Arbitration 

3. Congress should act to permit executive branch officials to agree to binding 
arbitration to resolve controversies. This legislation should authorize any executive official 
who has authority to settle controversies on behalf of the government to agree to arbitration, 
either prior to the time a dispute may arise or after a controversy has matured, subject to 
whatever may be the statutory authority of the Comptroller General to determine whether 
payment of public funds is warranted by applicable law and available appropriations. 

4. Congress should authorize agencies to adopt arbitration procedures to resolve matters 
that would otherwise be decided by the agency pursuant to the Administrative Procedure Act 
("APA") or other formal procedures. These procedures should provide that— 

(a) All parties to the dispute must knowingly consent to use the arbitration procedures, 
either before or after a dispute has arisen. 

(b) The parties have some role in the selection of arbitrators, whether by actual 
selection, by ranking those on a list of qualified arbitrators, or by striking individuals from 
such a list. 

(c) Arbitrators need not be permanent government employees, but may be individuals 
retained by the parties or the government for the purpose of arbitrating the matter. 

(d) Agency review of the arbitral award be pursuant to the standards for vacating 
awards under the U.S. Arbitration Act, 9 U.S.C. § 10, unless the award does not become an 
agency order or the agency does not have any right of review. 

(e) The award include a brief, informal discussion of its factual and legal basis, but 
neither formal findings of fact nor conclusions of law. 

(f) Any judicial review be pursuant to the limited scope-of-review provisions of the 
U.S. Arbitration Act, rather than the broader standards of the APA. 

(g) The arbitral award be enforced pursuant to the U.S. Arbitration Act, but is without 
precedential effect for any purpose. 

5. Factors bearing on agency use of arbitration are: 
(a) Arbitration is likely to be appropriate where— 

(1) The benefits that are likely to be gained from such a proceeding outweigh the 
probable delay or costs required by a full trial-type hearing. 

(2) The norms which will be used to resolve the issues raised have already been 
established by statute, precedent or rule, or the parties explicitly desire the arbitrator 
to make a decision based on some general standard, such as "justice under the 
circumstances," without regard to a prevailing norm. 



^See ACUS Recommendations 82-4 and 85-5, "Procedures for Negotiating Proposed 
Regulations," 1 CFR §§ 305.82-4 and 85-5. 



115 



Page 3 

(3) Having a decisionmaker with technical expertise would facilitate the 
resolution of the matter. 

(4) The parties desire privacy, and agency records subject to disclosure under the 
Freedom of Information Act are not involved. 

(b) Arbitration is likely to be inappropriate where— 

(1) A definitive or authoritative resolution of the matter is required or desired 
for its precedential value. 

(2) Maintaining established norms or policies is of special importance. 

(3) The case significantly affects persons who are not parties to the proceeding. 

(4) A full public record of the proceeding is important. 

(5) The case involves significant decisions as to government policy. 

6. Agency officials, and particularly regional or other officials directly responsible for 
implementing an arbitration or other ADR procedure, should make persistent efforts to 
increase potential parties' awareness and understanding of these procedures. 



C. Mandatory Arbitration 

7. Arbitration is not in all instances an adequate substitute for a trial-type hearing 
pursuant to the APA or for civil litigation. Hence, Congress should consider mandatory 
arbitration only where the advantages of such a proceeding are clearly outweighed by the 
need to (a) save the time or transaction costs involved or (b) have a technical expert resolve 
the issues. 

8. Mandatory arbitration is likely to be appropriate only where the matters to be 
resolved— 

(a) Are not intended to have precedential effect other than the resolution of the specific 
dispute, except that the awards may be published or indexed as informal guidance; 

(b) May be resolved through reference to an ascertainable norm such as statute, rule or 
custom;^ 

(c) Involve disputes between private parties; and 

(d) Do not involve the establishment or implementation of major new policies or 
precedents. 

9. Where Congress mandates arbitration as the exclusive means to resolve a dispute, it 
should provide the same procedures as in Paragraph 4, above. 



D. Settlement Techniques 



10. In many situations, agencies already have the authority to use techniques to achieve 
dispute settlements. Agencies should use this authority by routinely taking advantage of 



opportunities to: 

(a) Explicitly provide for the use of mediation. 



'For example, the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. § 136 et 
seq., provides for mandatory arbitration with respect to the amount of compensation one 
company must pay another and yet provides no guidance with respect to the criteria to be 
used to make these decisions. The program has engendered considerable controversy and 
litigation. 



116 



Page 4 

(b) Provide for the use of a settlement judge or other neutral agency official to aid the 
parties in reaching agreement.^ These persons might, for instance, advise the parties as to 
the likely outcome should they fail to reach settlement. 

(c) Implement agreements among the parties in interest, provided that some means Have 
been employed to identify other interested persons and afford them an opportunity to 
participate. 

(d) Provide for the use of minitrials. 

(e) Develop criteria that will help guide the negotiation of settlements.* 

1 1 . Agencies should apply the criteria developed in ACUS Recommendations 82-4 and 
85-5, pertaining to negotiated rulemaking,^ in deciding when it may be appropriate to 
negotiate, mediate or use similar ADR techniques to resolve any contested issue involving an 
agency. Settlement procedures may not be appropriate for decisions on some matters 
involving major public policy issues or having an impact on persons who are not parties, 
unless notice and comment procedures are used. 

12. Factors bearing on agency use of minitrials as a settlement technique are: 

(a) Minitrials are likely to be appropriate where— 

(1) The dispute is at a stage where substantial additional litigation costs, such as 
for discovery, are anticipated. 

(2) The matter is worth an amount sufficient to justify the senior executive time 
required to complete the process. 

(3) The issues involved include highly technical mixed questions of law and fact. 

(4) The matter involves materials that the government or other parties believe 
should not be revealed. 

(b) Minitrials are likely to be inappropriate where— 

(1) Witness credibility is of critical importance. 

(2) The issues may be resolved largely through reference to an ascertainable 
norm. 

(3) Major questions of public policy are involved. 

13. Proposed agency settlements are frequently subjected to multiple layers of intra- 
agency or other review and therefore may subsequently be revised. This uncertainty may 
discourage other parties from negotiating with federal officials. To encourage settlement 
negotiations, agencies should provide means by which all appropriate agency decisionmakers 
are involved in, or regularly apprised of, the course of major negotiations; agencies should 
also endeavor to streamline intra-agency review of settlements. These efforts should serve to 
ensure that the concerns of interested segments of the agency are reflected as early as 
possible in settlement negotiations, and to reduce the likelihood that tentative settlements 
will be upset. 

14. In cases where agencies must balance competing public policy interests, they should 
adopt techniques to enable officials to assess, in as objective a fashion as possible, the merits 



^See, e.g., the procedure used by the Federal Energy Regulatory Commission. 

^See ACUS Recommendation 79-3, "Agency Assessment and Mitigation of Civil Money 
Penalties," 1 CFR § 305.79-3. 

^See also, ACUS Recommendation 84-4, "Negotiated Cleanup of Hazardous Waste Sites 
Under CERCLA," 1 CFR § 305.84-4. 



117 



Pages 
of a proposed settlement. These efforts might include establishing a small review panel of 
senior officials or neutral advisors, using a minitrial, publishing the proposed settlement in 
the Federal Register for comment, securing tentative approval of the settlement by the 
agency head or other senior official, or employing other means to ensure the integrity of the 
decision. 

15. Some agency lawyers, administrative law judges, and other agency decisionmakers 
should be trained in arbitration, negotiation, mediation, and similar ADR skills, so they can 
(a) be alert to take advantage of alternatives or (b) hear and resolve other disputes involving 
their own or another agency. 



E. Private Sector Dispute Mechanisms 

16. Agencies should review the areas that they regulate to determine the potential for 
the establishment and use of dispute resolution mechanisms by private organizations as an 
alternative to direct agency action. Where such use is appropriate, the agency should— 

(a) Specify minimal procedures that will be acceptable to qualify as an approved dispute 
resolution mechanism. 

(b) Oversee the general operation of the process; ordinarily, it should not review 
individual decisions. 

(c) Tailor its requirements to provide an organization with incentives to establish such a 
program, such as forestalling other regulatory action, while ensuring that other interested 
parties view the forum as fair and effective. 



Appendix 



Lexicon of Alternate Means of Dispute Resolution 

Arbitration. Arbitration is closely akin to adjudication in that a neutral third party 
decides the submitted issue after reviewing evidence and hearing argument from the parties. 
It may be binding on the parties, either through agreement or operation of law, or it may be 
non-binding in that the decision is only advisory. Arbitration may be voluntary, where the 
parties agree to resolve the issues by means of arbitration, or it may be mandatory, where the 
process is the exclusive means provided. 

Factfinding. A "factfinding" proceeding entails the appointment of a person or group 
with technical expertise in the subject matter to evaluate the matter presented and file a 
report establishing the "facts." The factfinder is not authorized to resolve policy issues. 
Following the findings, the parties may then negotiate a settlement, hold further proceedings, 
or conduct more research. 

Minitrial. A minitrial is a structured settlement process in which each side presents a 
highly abbreviated summary of its case before senior officials of each party authorized to 
settle the case. A neutral adviser sometimes presides over the proceeding and will render an 
advisory opinion if asked to do so. Following the presentations, the officials seek to 
negotiate a settlement. 

Mediation. Mediation involves a neutral third party to assist the parties in negotiating 
an agreement. The mediator has no independent authority and does not render a decision; 
any decision must be reached by the parties themselves. 



118 



Page 6 
Facilitating. Facilitating helps parties reach a decision or a satisfactory resolution of the 
matter to be addressed. While often used interchangeably with "mediator," a facilitator 
generally conducts meetings and coordinates discussions, but does not become as involved in 
the substantive issues as does a mediator. 

Convening. Convening is a technique that helps identify issues in controversy and 
affected interests. The convenor is generally called upon to determine whether direct 
negotiations among the parties would be a suitable means of resolving the issues, and if so, to 
bring the parties together for that purpose. Convening has proved valuable in negotiated 
rulemaking. 

Negotiation. Negotiation is simply communication among people or parties in an effort 
to reach an agreement. It is used so routinely that it is frequently overlooked as a specific 
means of resolving disputes. In the administrative context, it means procedures and processes 
for settling matters that would otherwise be resolved by more formal means. 



119 

,ooo nAA Reprinted with permission from Villanova Law Review , 

1983-84] Volume 29, No. 6, pp. 1393-1419 

© Copyright 1983/4 by Villanova University 

DISPUTE RESOLUTION AND ADMINISTRATIVE LAW: 

THE HISTORY, NEEDS, AND FUTURE OF A 

COMPLEX RELATIONSHIP 

Philip J. HARTERf 

I. Introduction 

THE invitation to this Symposium described the "concern over 
the backlog in our courts and the high costs to litigants for full- 
scale trials" and mentioned that alternative means of dispute resolu- 
tion have become a "timely subject to the legal community."' Others 
have described the potential of alternative means of dispute resolu- 
tion in similar terms: 

Society cannot and should not rely exclusively on the 
courts for the resolution of disputes. Other mechanisms 
may be superior in a variety of controversies. They may be 
less expensive, faster, less intimidating, more sensitive to dis- 
putants' concerns, and more responsive to underlying 
problems. They may dispense better justice, result in less 
alienation, produce a feeling that a dispute v^as actually 
heard, and fulfill a need to retain control by not handing 
the dispute over to lawyers, judges, and the intricacies of the 
legal system.2 

There is no question but that a great deal of attention is currently 
being paid to dispute resolution — finding ways of resolving our dif- 
ferences outside of (or perhaps along side of) the courts — both as a 
way of providing relief to the courts and as a way of reaching more 
satisfactory decisions. 

Interestingly, it also seems customary to describe the purpose of 
many administrative programs and the accompanying process as pro- 
viding a more responsive, flexible means by which society's decisions 
can be made.^ Trials before agencies were supposed to be less cum- 

t A.B^ Kenyon College, 1964; M.A., University of Michigan, 1966; J.D., Uni- 
versity of Michigan, 1%9. 

1. Letter from J. Gordon Cooney, Jr., Editor-in-Chief, Villanova Law Review 
to Philip J. Harter (Aug. 10, 1983) (invitation to participate in 1984 Law Review 
Symposium). 

2. Office of Legal Policy of the United States Department of Jus- 
tice, Paths to Justice: Major Public Policy Issues of Dispute Resolution 
(1984). 

3. Sff B. Schwartz, Administrative L.\vj 3 (1976). Thus, for example, ad- 

(1393) 



120 

1394 ViLLANOVA Law Review (Vol. 29: p. 1393 

bersome, less expensive, and less time consuming than courtroom 
hearings."* Rulemaking was seen as a way of filling in the details of 
legislation or responding to particular needs in an easy, quickly exe- 
cuted manner as opposed to the vagaries of legislation or using trials 
to develop policy through the common law. Throughout this process, 
the courts were to ensure that the action taken was not arbitrary or 
capricious, and certainly within the bounds of legality, but other than 
that they were to accommodate the agencies' decisions. "^ 

It seems equally clear that the administrative process has now 
become part of the problem. Programs founded to be responsive have 
become laborious, unyielding, and repressive. The process itself is 
^'increasingly being criticized for being unduly costly, cumbersome 
and slow.'*^ These problems arose n6 doubt in part through bureau- 
cratic momentum and an effort to protect past values. But, they also 
arose from quite appropriate responses to very real difficulties. 

It therefore seems incumbent on those of us who are interested in 
the administrative process and in improving the way we make deci- 
sions affecting each other to be vigilant to see if there are ways of 



ministrative agencies were to address and redress problems created by or beyond the 
reach of the courts. One commentator explained that the definition of an "agency" 
in the Administrative Procedure Act (APA) "equates the ap^ ncy with the executive 
branch." Id.\ j<r<r Administrative Procedure Act, 5 U.S.C. §§j3 1-559, 701-706 (1982). 
The APA defines an "agency" as: 

[Ejach authority of the Government of the United States whether or 
not it is within or subject to review by another agency, but does not in- 
clude — 

(A) the Congress; 

(B) the courts of the United States; 

(C) the governments of the territories or possessions of the United 
States; 

(D) the government of the District of Columbia. 
5 U.S.C. § 551(1)(A)-(D) (1982). 

4. See generally K. Davis, AoMiNiSTRATlVE Law Text 194-214 (3d ed. 1972) 
(describing the adjudication procedures used by agencies) [hereinaUer cited as Davis 
Text]; B. Schwartz, rupra note 3, at 263-327 (discussing the fair hearing require- 
ments which are applied to agencies). In addition to being less expensive and less 
time consuming, the rules of procedure and evidence were to be tailored to achieve 
justice and economy. See generally 2 K. Davis, Administrative Law Treatise 
§ 102, at 308-09 (1979) (discussing "fair informal procedure" as a more accurate de- 
scription for agency action currently referred to a.s "adjudication") [hereinafter cited 
as Davis Treatise]. 

5. See Administrative Procedures Act, 5 U.S.C. § 706(2)(A) (1982). The APA 
directs the reviewing court to "hold unlawful and set aside agency action, findings, 
and conclusions found to be . . . arbitrary, capricious, an abuse of discretion, or 
otherwise not in accordance with law." Id.\ see generally 1 Davis Treatise, supra note 
4, at § 6:6 (di.K:u.ssing judicial review of agency rules and the effect of that review on 
the agency's choice of a rulemaking procedure). 

6. Announcement of .ABA Section of Administrative Law, Consensus as an Al- 
ternative to the Adversarial Process (program held September 30, 1983). 



121 
1983-84] Administrative Law 1395 

aligning the difficult balance of providing appropriate safeguards 
while reestablishing the original promise of administrative law.^ 

The review of the administrative process may be particularly 
pertinent to a general discussion of dispute resolution because it arose 
to meet a need in dispute resolution. In addition, as its processes 
evolved and matured, it had to struggle — and is struggling — to 
define its relationship to the courts. Thus, the "institutionalization"® 
of dispute resolution may learn much from the administrative pro- 
cess, and in turn the administrative process can profitably draw on 
the insights we are gaining on various forms of dispute resolution. 

To put the complex relationship of dispute resolution and the 
administrative process into perspective, it is helpful to look at its his- 
tory, the current needs, and the future. 

II. History of Administrative Law 
A. Establishment of Programs 

Many administrative agencies, the programs they administer, 
and individual regulations they issue can be explained, at least some- 
what, by a dissatisfaction with existing mechanisms for resolving 
either rights or interest disputes.^ The response has been the creation 
of agencies that are designed to alter the substantive rights of the af- 
fected parties and supplant judicial processes with an administrative 
one that, it is hoped, will better fulfill the goals of the program. Con- 
sider five examples: 

\. National Labor Relations Act (Act).*° Traditional legal 
concepts and doctrines, such as criminal prosecutions alleging con- 
spiracy or application of antitrust laws to union organizing, which 
were applied by the courts to labor relations led to broad dissatisfac- 
tion with the resulting antiunion or antiself-help holdings.** The re- 
sult was the passage of the National Labor Relations Act that is 
administered by the National Labor Relations Board (Board). The 

7. For discussion of the appropriate balance between safeguards and responsive- 
ness, see notes 31-32 and accompanying text infra. 

8. That seems an unfortunate term for the long run establishment of dispute 
resolution programs. While "establishment" has an aura of success about it, institu- 
tionalization sounds like a commitment to the local mental hospital. Nonetheless, 
that appears to be accepted terminology. 

9. Perritt, "And the Whole Earth Was of One Language"— A Broad View of Dispute 
Resolution, 29 Vill. L. Rev. 1221 (1984). 

10. 29 U.S.C. §§ 151-168 (1982). 

11. Much of the following analysis applies to regulatory programs that are 
designed to address "social" concerns that arise from an inequality of bargaining 
power. 



122 
1396 ViLLANOVA Law Review [Vol. 29: p. 1393 

Act itself gave rise to substantive rights of organization that were pre- 
viously denied, and the Board was to be an expert body that would 
be sympathetic to the cause of the rights of employees to organize and 
bargain collectively.*^ Moreover, a piece of the prolabor legislation '^ 
barred courts from interfering with this policy by issuing injunctions 
based on the traditional doctrines. ^"^ Thus, there was substantive dis- 
satisfaction with the state of the law as administered by the courts, so 
it was changed. There was also dissatisfaction with the bias that 
judges were reflecting and so a new, more sympathetic forum was 
created to hear the disputes that arose. 

2. Environmental Protection Agency (EPA). On first blush, 
the failure of dispute resolution would seem to have little to do with 
the Clean Air Act,'^ the Federal Water Pollution Control Act'^ or 
any of the other statutes that EPA administers.*^ If those who live 

12. See 29 U.S.C. § 151 (1982) The Act was passed to protect "by law the right 
of employees to organize and bargain collectively," and as a result safeguard "com- 
merce from injury, impairment, or interruption." Id. 

13. The Norris-LaGuardia Act "declared it to be the public policy of the United 
Slates that employees be permitted to organize and bargain collectively free of em- 
ployer coercion and sought to achieve that goal by regulating and in most cases bar- 
ring altogether the issuance of injunctions in a 'labor dispute.' " R. Gorman, Basic 
Text ON Labor L.aw 4 (1976); see 29 U.S.C. §§ 101-110, 113-115 (1982). 

14; R. Gorman, supra note 13, at 4; see generally h.. Cox, D. BoK & R. GORMAN, 
Cases and Materials on Labor Law 55-60 (9th ed. 1981) (a general discussion of 
some of the traditiowa! doctrines upon which, injunctions were based prior to the 
Norris-LaGuardia Act). 

15. 42 U.S.C. §§ 7401-7642 (1982). The Clean Air Act "regulates industrial air 
pollution by two distinct methods: air quality control and emission control." R. 
Zener, Guide to Federal Environmental Law 1 (1981). 

16. 33 U.S.C. §§ 1251-1376 (1982); see generally R. Zener, supra note 15, at 59- 
124 (an in-depth discussion of water pollution control legislation). 

17. The analysis that follows applies generally to regulatory programs that ad- 
dress "externalities." 6>^S. Breyer, Regulation and Its Reform 23-26 (1982); L 
MiLiJSTEiN & S. Katsh, The Limits of Corporate Power 138-42 (1981). It also 
applied to those regulatory areas known as "preclearance,'' although not as well. See 
generally I. MiLLSTEiN & S. Katsh, supra^ at 142-43 (preclearancc regulation requires 
agency approval before product is marketed). It would apply, for example, to the 
safety and efficacy of pharmaceuticals, since an expeditious means of resolving dis- 
agreements would internalize costs of mistakes and other problems. For that argu- 
ment to work, one must assume the firm will anticipate the adverse consequences 
that would flow from marketing a dangerous drug and hence would conduct the 
optimal amount of testing lo ensure its reasonable safety (and anticipating the need 
to get it on the market to meet a legitimate need). Not surprisingly, some people are 
repulsed by the notion that some individuals would pay with their lives to provide 
the information on hazards, and hence they argue in favor of a regulatory system 
thaR anticipate risks and seeks to prevent unreasonable risks before the drug is mar- 
keted. Even in that case, the dispute resolution theory might apply to the efficacy of 
drugs which are now regulated by the Food and Drug Administration. There is an 
extensive debate over whether the anticipatory regulation may actually lead to more 
deaths and serious illness than would the dispute resolution model. See, e.g., Roberts 
& Bodenhcimer, The Drug Amendments of 1962: The Anatomy of a Regulatory Failure, 1982 



123 
1983-84] Administrative Law 1397 

around a plant that is polluting the air or water had a responsive, 
inexpensive means of enforcing a "right"'^ to clean air or water and 
recovering damages from the offending plant, the costs of the pollu- 
tion would be internalized and the company would be forced to make 
an economic choice between paying and polluting or cleaning up. 
That choice would be enforced better than the EPA is likely able to 
do because those affected would presumably have a greater incentive 
— and appropriate knowledge — to bring an action. Moreover, the 
choice would likely be more nearly economically optimal since the 
costs would be distributed more precisely than is possible in com- 
mand-and-control regulation. ^^ Thus, under this system there would 
be no externalities to necessitate or justify regulation. But, of course, 
such a system does not exist: there is no direct, inexpensive, accurate 
system for internalizing those costs. Doing so would be wildly expen- 
sive and time consuming so that, as a result, the costs of pollution are 
borne by the neighbors. As a result of what has been perceived as a 
misallocation, the regulatory program was created that prohibits cer- 
tain conduct altogether as a means of internalizing the costs. More- 
over, a central agency is called upon to enforce its proscriptions. 
Sometimes that is because the beneficiaries — the neighbors in this 
case — still could not afford to enforce their new rights; and in other 
cases they could afford to do so, in which case the regulated company 
urges the limitation as a way of raising barriers to dispute resolution 
and hence warding off payments (be they accurate or not).^^ 

3. Federal Trade Commission (FTC). Several of the FTC's 
rules appear to be based, in fact if not as the stated purpose, squarely 

Ariz. St. L.J. 581, 612-13 (recommending informal dispute resolution to expedite 
new drug approval process). 

18. That "right" could be created by statute and administered by the elusive 
dispute resolution mechanism, or it could evolve from a "common law" response. 
There are several ways of altering the resolution of competing interests. The point 
here is the need for a functioning mechanism to resolve the disputes that would arise 
once the interests were identified. 

19. Command-and-control is a type of regulation in which the agency "re- 
quirc[s] or proscribc[s] specific conduct by regulated firms." Stewart, Regulation, Inno- 
vation, and Administrative Law: A Conceptual Franuwork, 69 Calif. L. Rev. 1256, 1264 
(1981). The regulating body enforces the commands with controls such as "orders, 
injunctions, civil penalties, and criminal fin«." Id. 

20. Note that disputes over whether the Clean Air Act and its implementing 
regulations have been violated are resolved by a court, not before the agency itself. 
See 42 U.S.C. § 7413 (1982). Given that it has become commonplace to have agen- 
cies themselves conduct hearings on whether the duties they impose have been met, 
this may well have reflected a concern on the part of business that the agency itself 
would be biased in favor of finding a violation and that it could receive a fairer, more 
impartial hearing before a court. That is certainly the history of the separation of the 
Occupational Safety and Health Review Commission from the Occupational Safety 
Health Administration, which issues the standards and citations for their violation. 



124 



1398 



Vi LLANO VA Law Rkview [Vol. 29: p. 1393 



on the Commission's belief that existing dispute resolution mecha- 
nisms are inadequate to redress what it perceived to be a problem. 
For example, if it were not so expensive and difficult to prosecute 
common law or statutory fraud cases, the Commission's regulation of 
vocational schools^' would make little sense. In order to prevent this 
pattern of fraud more effectively, the Commission prescribed specific 
rules the schools must meet. 2- The violation of these rules was then a 
violation of a duty owed to the FTC; and the Commission would en- 
force the rule against the errant school. Thus, as a result of the failure 
of a ready means for seeking redress, specific duties were created and 
the aggrieved party was changed from the individual to the Commis- 
sion. Interestingly, the student was left in about the same position as 
before: without recourse other than complaining to the Commission 
which might or might not take action. ^^ The FTC's rules on 
franchises^'* are similar. 

4. Workers Compensation. ^^ Worker compensation programs 
were in fact established because of dissatisfaction with the tort system 
for compensating injured employees. The programs created new 
rights that overrode the existing substantive law and were to be ad- 
ministered by an agency. Disagreements are resolved not in courts — 
at least in the first instance — but before the agencies themselves. 
The process was likely envisioned as a mix of bureaucratic justice, in 
which expert desk officers make the initial decisions, and a more judi- 
cial-like, but nonetheless sympathetic, forum resolves remaining dis- 
putes.2^ Only after that were courts invoked. Again, the lack of a 

2L The FTC established regulations with which proprietary vocational and 
home study schools had to comply to avoid committing unfair and deceptive acts. 
See 16 C.F.R. § 438 (1984). The purpose of this rule was "to alleviate currently abu- 
sive practices" such as "unfair and deceptive advertising sales, and enrollment prac- 
tices engaged in by some of the schools." Katharine Gibbs School, Inc. v. FTC, 612 
F.2d 658, 661 {2d Cir. 1979) (quoting 43 Fed. Reg. 60,795-817 (1978)). 

The FTC's rule was held invalid in 1979 because the regulation treated viola- 
tions of the FTC's " 'requirements prescribed for the purpose of preventing' unfair 
practices as themselves the unfair practices." Id. at 662. 

22. See 16 C.F.R. § 438 (1984). 

23. The existence of the rule might, of course, alter the student's bargaining 
power in liiformal negotiations with the school. The student is not, however, pro- 
vided the right to enforce the duty created by the rule in any forum that can issue a 
binding order. The rule required that the school include specific rights in its contract 
with students, and those rights would presumably be enforceable by the student 
through civil litigation; if the required clauses were omitted, however, it would ap- 
pear that enforcement would remain solely with the FTC. See id. 

24. See 16 C.F.R. § 436 (1984). 

25. A similar analysis would apply to Social Security Disability, Black Lung, or 
Railroad Retirement programs. 

26. For a thorough discussion of the mix of bureaucratic and judicial justice in 
Social Security disability cases, see J. Mashaw, Bureaucratic Justice (1983). 



125 

1983-84] Administrative Law 1399 

sympathetic, responsive forum led to the creation of an administra- 
tive program. 

5. Toxic Torts. *^' The enormous amount of litigation, both 
be lore courts and in workers compensation programs, over occupa- 
tional exposure to asbestos and the current concern over illness result- 
ing from exposure to toxic materials'-'" has led to proposals for the 
creation of neu' agencies, or the adaption of existing ones, to deal with 
the problem. 2'^ Some commentators have suggested that an agency 
could process disputes over whether a particular illness is sufficiently 
Hnked to a substance as to impose liability on its manufacturer.^^ 
Other authorities have suggested that an agency could develop infor- 
mation and presumptions that would be used in processing future 
claims and disputes. 

In sum, many regulatory programs are created to rectify a per- 
ceived market imperfection^* that may in fact refiect an inability to 
resolve .substantive disputes appropriately. That is, some people are 
regarded as ''victims" because they lack the redress that would be 
necessary for their rights and duties to be properly aligned with the 
rights and duties of others. The response, then, is the creation of an 
administrative program that both alters the substantive relationships 
and provides a built-in dispute resolution mechanism under more 
sympathetic procedures.^-^ 

The lesson in all of this is simpUy that dispute resolution and reg- 
ulation are closely related. We therefore need to consider both how 



27. For a reviev/ of the problems in the area of toxic torts, sec SevenUenth Annual 
Symposium, Toxic Torts: Judicial and Ugislalive Responses, 28 ViLL. L. Rev. 1083 (1983); 
Comment, 28 ViLl.. L. Rlv. 1298 (1983). 

28. See Schwartz & Means, The Need for Federal Product Liability and Toxic Tort 
Legislation: A Current Assessment, 28 V il.L. L. Rev. 1088 (1933). 

29. See id at 1109-1.5. 

30. This rather awkward way of saying (or, rather, avoiding saying) causation, is 
in recognition of the difficulty in establishing 'causation" in any rigorous sense under 
traditional tort law. The diseases may become manifest decades after exposure, have 
multiple etiologies, and also have a significant background incidence. Thus, ascrib- 
ing a partic'.ilar diseaise to a particular event (even one continuing over a p>eriod of 
time) may be impossible under the best of circumstances, and even more so given the 
frequent Lick of data. As a result, a new form of resolving the question of illnesses 
that are attributed to exposure to toxic materials has been advocated. Some com- 
mentators have also been opposed on the ground that the uncertamty would Sjc inap- 
propriately resolved in favor of excessive recovery. The debate will likely be one of 
the lively political debates of the year. See Kircher, Federal Product legislation and Toxic 
Torts: The Defense Perspective, 23 ViLL. L. Rev. 1116, 1119-31 (1983). 

31. This theory may not apply to regulatory programs that arc designed to cure 
failure of competition. See I. MlLi^;rEiN & S. Katsh, supra note 17, at 132-46. 

32. Some progiam.s are, of course, enforced in courts, or by other existing means. 
The dispute resolution mechanism is nonetheless altered by changing the nature of 
the underlying dispute. 



126 
1400 ViLLANOVA Law Review [Vol. 29: p. 1393 

to improve dispute resolution and whether a regulatory program is 
needed to cure some perceived social ill. Lack of sensitivity to that 
link may result in dysfunctional overkill that will actually hurt in the 
long run. Moreover, one needs to be sensitive to the history of admin- 
istrative programs when looking at the institutionalization of new 
forms of dispute resolution: perhaps the appropriate response is not a 
new form of dispute resolution but the creation of an agency; or, con- 
trariwise, perhaps in some cases the experience will indicate the na- 
ture of future problems that are likely to arise. 

B. Administrative Procedure 

While new administrative programs were being created during 
the 1920's and 1930's to provide new rights, greater flexibility, and 
more responsiveness to new situations, efforts were simultaneously be- 
ing made to use the procedure by which they operated to confine the 
exercise of the new powers to that explicitly granted by Congress.^^ 
Moreover, many of the programs that were developed during this pe- 
riod required quite formal proceedings for developing rules and oper- 
ated through formal processes.^'* Congress passed a bill in 1939^^ that 
would codify this approach generally, only to have it vetoed by Presi- 
dent Roosevelt because it was too rigid. In language reminiscent of 
that describing the need for alternative means of dispute resolution 
and the problems with both courts and lawyers, President Roosevelt 
pointed out his problems with the bill: 

The administrative tribunal or agency has been 
evolved in order to handle controversies arising under par- 
ticular statutes. It is characteristic of these tribunals that 
simple and nontechnical hearings take the place of court tri- 
als and informal proceedings supersede rigid and formal 
pleadings and processes .... 

. . . [A] large part of the legal profession[, however,] has 
never reconciled itself to the existence of the administrative 
tribunal. Many of them prefer the stately ritual of the 

33. Stewart, The Reformation of American Administrative Imw, 88 Harv. L. Rev. 
1669, 1671-73 (1975). Professor Stewart has explained the confines placed upon ad- 
ministrative law as follows: "Coercive controls on private conduct must be author- 
ized by the legislature, and, under the doctrine against delegation of legislative 
f>ower, the legislature must promulgate rules, standards, goals, or some 'intelligible 
principle' to guide the exercise of administrative power." Id. at 1672 (footnote 
omitted). 

34. Attorney General's Committee on Administrative Procedure, Fi- 
nal Report 105-08 (1941). 

35. Walter-Logan Bill, H.R. 6324, 76th Cong., 3d Sess. (1940). 



127 
1983-84] Administrative L.-\w 1401 

courts, in which lawyers play the speaking parts, to the sim- 
ple procedure of administrative hearings which a client can 
understand and even participate in.^^ 

Thus, there has been a tension in administrative procedure be- 
tween those who desire a relatively formal process and those who de- 
sire a more flexible process. While the Administrative Procedure Act 
(APA) codified some types of procedures, the battle over the adminis- 
trative process continues.^^ 

The APA, unlike Gaul, is divided into two relatively distinct 
camps: notice and comment rulemaking and hearings of some sort, 
with an emphasis on formal, trial-type activities. ^s The rulemaking 
section calls only for a notice of proposed rulemaking in the Federal 
Register^ the receipt of comments from interested members of the pub- 
lic, the consideration of "relevant" matters presented, and finally a 
notice of the final rule along with a "concise general statement of [its] 
basis and purpose." In fact, however, a far more comprehensive pro- 
cedure was contemplated for rules of much substance. ^^ On the other 
hand, intricate and complex procedures are spelled out for adjudica- 
tion and formal rulemaking."*^ 

But in fact these two models are only the poles of a continuum of 
procedures."*' There is more, and it is complicated. The two models 
do not recognize"*^ some of the important variations of the adminis- 
trative process that have arisen in the past twenty years during the 
enormous growth of the administrative state. 

For example, is a permit issued by the EPA under any of the 
several statutes it administers a rule or an adjudication?"*^ What 

36. 86 Cong. Reg. 13,942-43 (1940). 

37. Harter, Negotiating Regulations: A Cure for Malaise, 71 Geo. L.J. 1, 2-18 (1982). 

38. For example, the APA first defines a "rule." 5 U.S.C. § 551(4) (1982). An 
"order" is then defined as "the whole or part of a final disposition . . . of an agency 
in a matter other than rule making but including licensing." Id. § 551(6). "Adjudica- 
tion" is in turn defined as the "process for the formulation of an order." Id. § 551(7). 
Thus, the world is divided into two parts: rules and orders, and the correlative proce- 
dure is either rulemaking or adjudication. 

39. Harter, supra note 37, at 9- 10. 

40. 5 U.S.C. §§ 557-558 (1982). 

41. Since rulemaking has jo/;?^ structure, it is not actually the lower bound since 
some administriative actions are without any structure whatever. It is, however, 
likely to be the pole with respect to any defined process since it is so flexible and has 
many exceptions. 

42. Along with the APA, administrative law texts tend to follow the rigid di- 
chotomy and overlook the other processes. 

43. While reading the definition of a rule (a statement of general or particular 
applicability and future effect designed to implement, interpret, or prescribe law) 
might reasonably lead one to believe that a permit is a rule (it is, of course, of particu- 
lar applicability; it will take effect in the future; and it implements law) that is not 



128 



1402 ViLLANOVA Law Review [Vol. 29: p. 1393 

about the restrictions in the Chrysler loan guarantee or other subsi- 
dies? What about all those conditions put in grants to states — such as 
the 55 m.p.h. speed limit — that are every bit as coercive as a regula- 
tion but outside the confines of the APA? How are agencies supposed 
to make decisions such as w^hethcr to put roads in national forests, to 
approve an environmental impact statement, or to approve a request 
for a rent increase in subsidized housing? And, indeed, what of adju- 
dication itself? The provisions of the APA are genuinely Byzantine. 
But they apply only to the formal hearings presided over by adminis- 
trative law judges. Other forms of hearings are not described. More- 
over, the Departments of Labor and Health and Human Services 
alone employ more than 800 administrative law judges and process 
400,000 cases each year."^"* The procedures which agencies actually 
follow are far more diverse than those defined in the APA. They arise 
through ad hoc judgments, are provided for in substantive statutes, 
and are imposed by courts. Agencies have created a broad range of 
alternative means of making the incredibly varied decisions the gov- 
ernment is called on to make. It might help if we explicitly recog- 
nized these alternatives. Perhaps the APA could be expanded to take 
account of what is really happening, thereby consolidating our expe- 
rience so that others could build on it. 

We need also to build on the experience of others. We are gain- 
ing insights into new forms of dispute resolution or, more accurately, 
the application of dispute resolution techniques in new settings. A 
literature is developing — this Symposium is part of it — on the sub- 
ject, often along substantive lines. We need to take advantage of this 
trend and marry that experience and understanding with the peculiar 
needs of the administrative process. 

These alternative techniques have been used in the administra- 
tive process, and much more appears to be developing currently. But 
no particular theory has developed as to how they should be used, 
how they relate to the traditional processes, what forms of procedures 
should be used to ensure that appropriate protections are afforded the 
parties and the body politic, and what their advantages and disad- 
vantages are in particular settings. Research on that front is in pro- 
gress and our understanding will undoubtedly grow as our experience 
does. 

In the meantime, four areas of administrative procedure seem 

the answer. See note 38 supra. The adjudicatory sections of the APA are not terribly 
responsive to the needs here, however. 

i4. See generally Lubbers, Federal Adminuirative Law Judges: A Focus on Our Invisible 
Judiciary, 33 Ad. L. Rev. 109 (1981). 



129 

1983-84] Administrative Law 1403 

particularly in need of various means of dispute resolution that have 
not been generally used in the administrative process, or at least are 
not recognized as having been generally used. 

III. Needs of Administrative Procedure 

Administrative law has been, as the saying goes with respect to 
the states, a ''laboratory" where many alternative procedures have 
been created and experimented with, sometimes discarded and some- 
times institutionalized.*^ But it has lagged behind the private sector 
in its use and adaptation of the various forms of dispute resolution 
that are being discussed at this Symposium. Happily, a number of 
agencies are responding to the challenge and a considerable amount 
of effort is going into looking at new ways of doing things. 

We are on the verge of a new round of experimentation with 
administrative procedure.*^ While the use and adaptation of these 
dispute resolution mechanisms is needed across virtually the entire 
span of administrative law, it seems convenient to break down the 
analysis into four categories: rulemaking; agency adjudication; forms 
of administrative decisions not specifically mentioned in the APA; 
and dispute resolution mechanisms in the private sector that are used 
in lieu of agency action or are required by agency action. 

A. Rulemaking 

The rulemaking provisions of the APA are remarkably sparse — 
consult, draft, consult, publish. They were borne of a compromise 
between those who favored very little restriction on an agency and 
those who wanted everything done in trials."*^ While an agency's du- 
ties are few, the drafters clearly contemplated that more would be 

45. Ste, e.g.. Citizens for a Better Environment v. Gorsuch, 718 F.'id 1117, 1 133- 
34 (D.C. Cir. 1983) (Wilkie, J., dissenting) (judicially created consent decree requir- 
ing creation of new EPA programs should not be enforced because it limits the flexi- 
bility of the EPA Administrator in making choices as to priorities, methods, and 
allocation of resources), cert, denied, 104 S. Ct. 2668 (1984). 

46. It is interesting to note that in genera! over the past twenty-five years, Amer- 
ican administrative law has become increasingly judicialized. Both its rulemaking 
and adjudicatory procedures have become formal and more courtroom-like. Euro- 
pean procedure, on the other hand, was more informal, contained more direct negoti- 
ations among the major parties in interest but with little ability on the part of others 
to sway the decisions, and hence relied more on the general political environment to 
ensure decisions consistent with the public will. Recently, however, we have seen a 
leavening of the American approach, with an increasing reliance on oversight, inter- 
nal controls, and direct participation through informal means, while in Europe the 
procedures arc becoming increasingly structured. Thus, the two arc converging. 

47. See generally Davis Text, supra note 4, at 9 (the 1946 enactment of the APA 
was the result of a compromise between the plans proposed by the Administration 
and the American Bar Association). 



130 



1404 ViLLANOVA Law Review [Vol. 29: p. 1393 

done when necessary."*^ There would be two reasons for faith in the 
resulting regulations: One theory had it that the agencies were "ex- 
perts" and, in a technocratic way, could figure out how best to re- 
spond to the situation at hand.'*^ The second reason was that 
agencies would operate comfortably within the confines of a political 
consensus, so their actions could be judged directly against the pre- 
vailing norms.^^ Both theories broke down, however, as we moved 
into the regulatory state. New regulations require enormous factual 
material and as a result the expert model does not work terribly well: 
indeed it has been repudiated in fact if not explicitly, although ves- 
tiges clearly remain.^' Few agencies enjoy a consensus as to their mis- 
sion, and there is a strong feeling by many that the agency has an 
independent agenda, although both sides tend to think it favors the 
other. Thus, that too has waned as a justification for agency action. 

The "hybrid rulemaking process" evolved to provide the missing 
legitimacy. Although its details vary almost from proceeding to pro- 
ceeding, its basic contours are that all interested parties have a right 
to present facts and arguments to an agency under procedures 
designed to test the underlying data and ensure the rationality of the 
agency*s decision;^^ a court of appeals will then take a "hard look" at 
the agency's action to ensure that the requirements have been met. 
As a result, the focus is on narrowing the agency's discretion by con- 
trolling the record, and hence the fight over the record becomes par- 
ticularly bitter and adversarial. 

But while the factual basis of a rule is unquestionably important, 
there generally is no purely rational answer or response to it. Rather, 
at bottom the resulting rule is a political choice that reconciles a host 

48. The Supreme Court has made clear that the choice as to whether to invoke 
the additional procedures belongs to the agency, not a court or any private party. Sfe 
Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, 435 
U.S. 519, 524 (1978). 

49. See Stewart, supra note 19, at 1274. 

50. Id. Perhaps the prime example of this was the Securities and Exchange 
Commission (SEC). While there may have been differences of opinion at the fringes, 
there app>eared to be general consensus on its mission, both as to what conduct in the 
private sector was and was not acceptable and how the agency was to go about polic- 
ing unacceptable conduct. The SEC was, during that time, widely credited with be- 
ing the *'best" agency. Now that the Commission has ventured into new and 
controversial areas such as corporate governance, that consensus has broken down 
and attacks are common. 

51. For a discussion of the breakdown of the "agency as expert" model of ad- 
ministrative law, sec Comment, An Alternative to the Traditional Rulemaking Process^: A 
Case Study of Negotiation in the Development of Regulations, 29 ViLL. L. Rev. 1505 (1984). 

52. While anyone can, of course, submit comments in response to a notice of 
proposed rulemaking, only interested parties can participate in this process fully by 
invoking the aid of courts or forcing participation in agency hearings. 



131 

1983-84] Administrative Law 1405 

of competing values or interests. Usually the way to legitimize such a 
political choice is through a legislative process in which representa- 
tives of those affected would meet to reach an appropriate resolu- 
tion.^^ Thus, it appears appropriate to look for a process that is 
modeled more on the legislature than on the judiciary: regulations 
developed by those substantially affected would have a political legit- 
imacy beyond that of the hybrid rulemaking process. The Adminis- 
trative Conference of the United States has recommended that 
agencies experiment with negotiating regulations directly among the 
interests that would be substantially affected. ^"^ The conditions that 
are hospitable for using direct negotiations ar^e: 

1. There are a limited number of interests that will be significantly 
affected, and they are such that individuals can be selected to repre- 
sent them; a rule of thumb is that fifteen is a practical limit on the 
number of people who participate at any one time;^^ 

2. The issues are ripe and mature for decision;^^ 

3. The resolution of the issues presented will not require any interest 
to compromise a fundamental tenet or value, since agreement on that 
is unlikely;^^ 

4. There is a reasonable deadline for the action so that unless the 

53. The historical method of legitimizing a political choice was through the leg- 
islative process. The Founding Fathers of the United States created a "representive 
democracy" as a mechanism to reconcile the competing political values and to legiti- 
mize the choice which the legislature would make between those values. See generally 
G. Wood, The Creation of the American Republic, 1776-1787, at 58-59 (1969) 
(direct election of the representatives of the people rendered America's government a 
form of representation ingrafted upon democracy). 

54. Administrative Conference of the United States Recommendation No. 82-4, 
1 C.F.R. § 305.82-4 (1984). The following discussion of negotiating rules is a synthe- 
sis of the discussion in the report upon which the Administrative Conference of the 
United States based its recommendation. See Harter, supra note 37; see generally Com- 
ment, supra note 51, at 1513-35 (discussing Mr. Harter's proposal for negotiating rules 
and summarizing a comparative case study of rules of regulations which involved 
extensive public participation without using Mr. Harter's negotiation format). 

55. Harter, supra note 37, at 46. i^w/j^-zr Comment, supra note 51, at 1535-36 & n. 
118 (a 15-person limit is too inflexible; the focus should be on representation of all 
important interests at negotiations). 

56. Harter, supra note 37, at 47. An issue may not be ready for resolution be- 
cause of lack of information, because the interests involved in its resolution are unas- 
ccrtainablc, or because the parties involved arc still "jockeying for position." Id. 

57. Id. at 49-50. No party is likely to compromise something it regards as funda- 
mental or an article of faith. Thus, for example, it is not likely that one could have 
reached agreement on the role of costs in an Occupational Safety and Health Admin- 
istration health regulation since industry and labor had fundamentally different 
views on the matter and it was central to how future standards would be developed. 
Now that the Supreme Court has wrestled with the issue and, even if not resolving it, 
has put boundaries on the matter, standards may be able to be negotiated. Id. (citing 
Industrial Union Dep't v. American Petroleum Inst., 448 U.S. 607, 639 (1980)). 



132 
1406 ViLLANOVA Law Review [Vol. 29: p. 1393 

parties reach an agreement, someone else will impose the decision;^^ 

5. There are sufficiently many and diverse issues that the parties can 
rank them according to their own needs and priorities;''^ 

6. There is sufficient countervailing power so that no party is in a 
position to dictate the result;^ 

7. Participants view it as in their interest to use the process as op- 
posed to the traditional one;^' and 

8. The agency is willing to use the process and will appoint a senior 
staff member to represent it.^^ 

The process envisions that a neutral third party would contact 
the various parties to review the issues posed by the proposed regula- 
tion and determine whether there are additional parties that should 
be represented in discussions. If the conditions are met, the agency 
would publish a notice in the Federal RggisUr 2inno\xnc\n^ its intention 
to develop the proposed rule in this way and inviting parties who are 
not represented to come forward. It would then empanel the group 
as an advisory committee.^^ Its charge would be to develop a consen- 

58. Id. at 47-48. Some party is likely to profit from delay, and because no inter- 
est is likely to be willing to invest the time and energy in discussions until it is neces- 
sary, a reasonable deadline for action is very helpful. The parties will then know that 
delay will be greeted with a loss of control or some unacceptable cost. Id. 

59. Id. at 50. What may be very important to one party may not be that impor- 
tant to others. One of the major benefits of the discussions is that the parties can 
address the issues directly and attempt to maximize the overall return — against the 
backdrop of the statute, which defines the national interest, and precedent — by 
adjusting the reponse to the various issues. A single, bi(X}lar choice is not the stuff of 
negotiations. Id. 

60. Id. at 45. One of the major incentives for direct discussions is that parties are 
otherwise at loggerheads and cannot move without incurring an unacceptable cost. 
Some parties may gain the p>ower to inflict that cost solely through traditional proce- 
dures. In that ca.se, the situation must be carefully reviewed to see if the ihreal of 
invoking that process is sufficient to empower the party to negotiate, or whether using 
the alternative process would disenfranchise them. In short, without countervailing 
power at the table, the process could be badly abused. Id. 

61. Id. dii 43. If parties do not view the process as in their overall interest, it is not 
likely that discussions will be productive. Thus, it may be inappropriate to say simply 
that the rule will be develo{>ed this way and if anyone wants to participate they must 
do so in this way. On the other hand, if a process is started, parties frequently will 
come and participate fully even if they would have advocated it at the outset. Id. 

62. Id. at 51. But see Comment, supra note 51, at 1536-37 (agency should be 
represented by middle-level employees in addition to senior staff members). An 
agency that is not in favor of this process can always find creative ways to sabotage it. 
Moreover, experience shows rather vividly that if the agency itself does not partici- 
pate or have some other intimate connection to it, the fruits of the discussions are 
highly likely to be rejected or atrophy for lack of attention through the "not invented 
here" syndrome. Harter, supra note 37, at 51. 

63. An advisory committee would have to be empanelled in order to comply 
with the Federal Advisory Ck)mmittee Act, 5 U.S.C. app. §§ 1-15 (1982). An advisory 
committee exists whenever a committee, conference, panel, or similar group is con- 
vened in order to render advice to the President or an agency. H.R. Rep. No. 1017, 



133 

1983-84] Administrative Law 1407 

sus on a proposed rule and supporting preamble. "Consensus" in this 
context means that no interest that is represented dissents from the 
recommendation.*'^ This is necessary so that no interest loses power it 
might otherwise have through the traditional process. Note also that 
an individual might object, but overall the interest as a whole does 
not.^^ It may be, of course, that the group is not able to reach agree- 
ment on a particular recommendation, but the discussions reveal a 
"region" or area within which the parties can "live with the result." 
In that case, the recommendation would be that agency arbitrate 
among the interests by developing the rule within those boundaries. 

The agency would agree to use the results as the basis of its pro- 
posed rule unless something were quite wrong with them. That is 
appropriate because a senior agency official presumably concurred in 
the result, and he should have received the appropriate internal clear- 
ances before doing so. Thus, the agreement is not alien to the agency. 
The group is likely to want such assurance before it will be willing to 
incur the time, expense, and anguish of reaching an agreement, lest 
its work simply be disregarded.^ The agency might wish to append 
its own comments on the proposal to flesh out public response, but it 
should clearly delineate between that which is its and that which re- 
flected the consensus of the group. The agency would then subject 
the proposal to the normal rulemaking process and would, of course, 
modify the proposal in response to meritorious comments.^' 

Several agencies have started using the process. The Depart- 
ment of Transportation recently announced that it planned to use it 
to revise its rule concerning pilots' flight duty status time.^ The rule 
had proved particularly intractable, and the Federal Aviation Ad- 
ministration had tried several times to revise it, only to be blocked by 
one interest or another. The existing rule had generated more re- 
quests for interpretations than any other, with the result being that 
the rule was supplemented by over 1,000 pages of agency comments. 
Nineteen parties^^ started the process on June 29, 1983^^ and held 

92d Cong., 2d Sess. 2-4, reprmted in 1972 U.S. Code Cong. & Ad. News 3491, 3492- 
94. 

64. See Harter, supra note 37, at 92-97. 

65. Id. 

66. Id. at 99-102; Harter, The Political Legitimacy and Judicial Review of Consensual 
RuUs, 32 Am. U.L. Rev. 471, 480 (1983). 

67. Harter, supra note 37, at 100-02. 

68. Notice of Intent to Form Advisory Committee for Regulatory Negotiation, 
48 Fed. Reg. 21,339 (1983). 

69. Notice of Establishment of Advisory Committee, 48 Fed. Reg. 29,771, 
29,772 (1983). The original advisory committee was made up of representatives from 
the FAA, National Air Carrier Association, National Air Transponation Association, 



134 

1408 ViLLANOVA Law Review [Vol. 29: p. 1393 

seven meetings^* over an eight month period. 

The group was not able to reach a consensus on a single propo- 
sal, but it did hold thorough and productive sessions. Based on those 
discussions, the FAA drafted a proposal that was reviewed by the 
group, which concurred that it should be published as a notice of 
proposed rulemaking. At this time, it is too early to tell whether the 
discussions will lead to a rule which is acceptable to the parties that 

participated in the discussions, as well as any who did not 
participate. -^2 

The Occupational Safety and Health Administration (OSHA) 
undertook a "feasibility analysis*' to determine whether it would be 
appropriate to use the process for the development of its standard on 
the occupational exposure to benzene.''^ Following discussions with 
the interested parties, it appeared that the above conditions were met 
particularly well. The only possible difficulty was that a great deal of 
emotional commitment was attached to the standard because of the 
regulation's history and, since OSHA had announced that it wanted 
a draft standard within only a few months, there was likely not 
enough time to use the process. But, since the criteria appeared to be 
met and it appeared that the parties did in fact have a great deal to 
discuss, a preliminary meeting was held to determine if it would be 
fruitful to hold further, informal discussions to the end of developing 
a consensus on the contours of a standard. The group decided that 
such meetings would be fruitful, and several informal discussions were 
held.^* The meetings thoroughly explored the parties' needs and con- 
cerns and alternative ways of meeting them. The parties came very 

Air Line Pilots Association, Flight Engineers International Association, Alaska Air 
Carriers Association, Aviation Consumer Action Project, Air Transport Association, 
Regional Airline Association, Helicopter Association International, Pan American 
World Airways, People's Express, New York Air, Southwest Airlines, DHL Cargo, 
and International Brotherhood of Teamsters. Id. 

70. Id. 

71. The advisory committee met seven times between June 29, 1983 and Febru- 
ary 14, 1984, for a total of seventeen days. Notice of Proposed Rulemaking, 49 Fed. 
Reg. 12,136, 12,137-38 (1984). 

72. See id, (publication of proposed regulation); Advisory Committee Supports FAA 
Drqfl for Pilot Time Rules, AVIATION Week Space Tech., March 12, 1984, at 194. 

73. See generally Industrial Union Dep't v. American Petroleum Inst., 448 U.S. 
607 (1980) (rule promulgated by OSHA to replace national consensus standard for 
occupational exposure to benzene held invalid). The API case opened the door for 
negotiation of a new benzene regulation. See id. 

74. Failure of Mediation Group to Agree fVill Not Delay Rulemaking, OSHA Says, 7 
Chemical Reg. Rep. (BNA) 16% (1984). OSHA did not participate in the discus- 
sions, but expressed its support for them and its interest in using their fruits. OSHA 
continued to develop its own proposal in-house, and hence would have been in a 
position to judge rather immediately the merits of any proposal that might have 
emerged. Id. 



135 

1983-84] Administrative Law 1409 

close to a consensus^^ but enough issues separated them that discus- 
sions have been adjourned.^^ It seems clear that the group got farther 
than virtually anyone thought they would over so controversial a reg- 
ulation, and there was consensus that it had been a productive, re- 
warding experience. As with the FAA rule, only time will tell 
whether the discussions have a direct and wholesome effect on the 
development of a standard. ^^ 

Although thus far there are no clear success stories that have 
gone all the way to a consensus on a proposed rule and supporting 
preamble, it appears that regulatory negotiation offers significant ad- 
vantages. It enables the parties to address the issues directly and to 
explore them in a detail that is impossible in the hybrid process. That 
its first two uses addressed enormously controversial and complex is- 
sues also attests to its ability to breach previously unresolvable differ- 
ences between the parties. As will be discussed below, these two 
experiences will likely pave the way for future uses, precisely because 
future parties can be more comfortable with using a "known" process 
and not worry about the vagaries of the unknown. ^^ 

B. AdjudicatioTp^ 

The APA defines the adjudication procedure only for those adju- 
catory proceedings "required by statute to be determined on the rec- 
ord after opportunity for an agency hearing,'* except in certain 

75. Id. The participants were representatives of the Chemical Manufacturers 
Association, the Rubber Manufacturers Association, the American Iron and Steel 
Institute, the American Petroleum Institute, the AFL-CIO, the United Steelworkers 
of America, the Oil, Chemical, and Atomic Workers International Union, and the 
United Rubber Workers. Id. 

76. Id 

11. Mr. Doug Clark, special assistant to the OSHA Administrator, commented 
that the discussions between labor and industry will result in "a strong standard for 
worker protection" when the benzene standard goes into effect. Id. 

One benefit that is likely to come from the experience is that it served to break 
the ground for the actual use of the process; doing so entails a new way of looking at 
regulatory questions that can pose practical problems for the participants. For exam- 
ple, it requires the parties to actually address what they want or need and to bear the 
responsibility for the decisions that arc made. It is often far easier simply to blame a 
recalcitrant agency for "not understanding*' than to decide what is appropriate. The 
representatives and the parties confronted this difficulty with admirable energy and 
ability. That will likely serve as the foundation for future efforts. 

78. See generally Comment, supra note 51. 

79. The preceding section on rulemaking was developed extensively both 
because research on it has been completed and because the newly recommended 
procedures are beginning to be used. The sections that follow will be more 
abbreviated and raise more questions than they put to rest. That is because research 
in this area is only now beginning for the Administrative Conference of the United 
States in conjunction with the Department of Justice. 



136 

1410 ViLLANOVA Law Review [Vol. 29: p. 1393 

specified instances.^^ That limitation notwithstanding, agencies in 
fact provide a wide variety of hearings and a substantial literature has 
developed analyzing the range of procedures.^* Much of the analysis 
was generated in response to the Supreme Court's decision in Goldberg 
V. Kelly^"^ in which the Court analyzed the minimal qualities a hear- 
ing must have to pass constitutional muster prior to the termination 
of welfare benefits. The Court demonstrated the paucity of the legal 
approach by showing a mindset that the only satisfactory way to do 
something is to emulate courts: while it denied it was requiring a for- 
mal hearing, it required most of the attributes of a Perry Mason 
trial.^^ The concern is not so much for the burden the court imposes, 
which is very likely substantial, but for the irrelevance of its dictates 
to solving the problem, and its insensitivity for the long run conse- 
quences. Happily, the case has not been followed rigorously.^'* 

As a result, it is appropriate to ask two questions: what kind of 
proceedings can be provided that meet the constitutional require- 
ments for "some kind of hearing"^^ and^ perhaps more importantly for 
our purposes, what sort of hearings can be offered as a voluntary al- 

80. 5 U.S.C. § 554(a) (1982). Section 554(a) provides in pertinent part: 
(a) This section applies, according to the provisions thereof, in every case of 
adjudication required by statute to be determined on the record after op- 
portunity for an agency hearing, except to the extent that there is involved 

(1) a matter subject to a subsequent trial of the law and the facts de 
novo in a court. 
Id. 

81. Sfe Friendly, ''Some Kind of a Hearing," 123 U. Pa. L. Rev. 1267 (1975); 
VcrkxiW, Judicial Review of Informal Rulemaking, 60 Va. L. Rev. 185 (1974). 

82. 397 U.S. 254 (1970). The issue in Goldberg v/as "whether a State that termi- 
nates public assistance payments to a particular recipient without affording him the 
opportunity for an evidentiary hearing prior to termination denies the recipient pro- 
cedural due process in violation of the Due Process Clause of the Fourteenth Amend- 
ment." Id. at 255. The Court held that the recipient should have been afforded 
"timely and adequate notice detailing the reasons for a proposed termination, and an 
effective opponunity to defend by confronting any adverse witnesses and by present- 
ing his own arguments and evidence orally." Id at 267-68. 

83. Id 

84. See Mathews v. Eldridge, 424 U.S. 319 (1976). In Mathews, the Court ex- 
plained that the nature of the required hearing could be determined by balancing 
the need for accuracy against the magnitude of the deprivation and the burden it 
would impose on the system in which the hearing is being held. Id. at 339-49. It may 
have reached its decision more by an ad hoc determination of the comparative mag- 
nitude of the deprivation of losing welfare rights as opposed to disability rights. Id. at 
340-43. 

85. See Friendly, supra note 81, at 1267. Judge Friendly explained that the ex- 
pression "some kind of hearing" is "drawn from an opinion by Mr. Justice White 
.... He stated, 'The Court has consistently held that some kind of hearing is required 
at some time before a person is finally deprived of his property interests.' " Id. (quot- 
ing Wolff v. McDonnell, 418 U.S. 539, 557-58 (1974)) (emphasis added by Judge 
Friendly). 



137 

1983-84] Administrative Law 1411 

ternative to more formal means. While, to be sure, agencies have 
used informal "modified hearings" for decades, given the current in- 
terest and the growth of experience with alternative means of dispute 
resolution, it is appropriate to ask when they can be used and how 
they need to be adapted to meet the dictates of the administrative 
process. 

It is also necessary to ask whether any sort of process, in the form 
of an adaptation of trial-type hearings, is the appropriate response to 
achieving the desired goals. No one would seriously contend that a 
disagreement over how much postage should be placed on a package 
should be made by means of a trial. Rather, the better solution is 
likely to be some sort of "quality control" mechanism to ensure that 
the bureaucratic decisions are made with acceptable accuracy. Thus, 
2& in any other dispute, the nature of the issue in question must be 
analyzed before the appropriate method for addressing it can be 
designed.^ 

A range of techniques might be used to provide alternatives to 
traditional forms of agency adjudication. 

Mediation^'^ The decision that needs to be made may be quite 
appropriate for mediation or direct negotiations among the affected 
parties. The criteria that are described above can also be used to 
determine whether the issues would be suitable. The one major dif- 
ference between negotiation and mediation in the administrative pro- 
cess and their private counterpart is that for at least some types of 
decision, the parties themselves cannot dispose of the issue but, rather, 
additional procedures may be necessary. It may be, for example, that 
agency officials who have the ultimate decisional authority are not 
present, or that the decision must be reconciled with existing public 
policy and hence subject to review by someone, or that the decision 
may affect other members of the public in such a way that they have 
the right to participate somehow in the decision before it is final. 
Thus, before undertaking discussions, the parties must analyze every- 

86. See Mashaw, Administrative Due Process: The Quest Jor a Dignatary Theory, 61 
B.U.L. Rev. 885 (1981). 

87. One authority has described the role of a mediator as follows: 

A mediator is an impartial outsider who tries to aid the negotiators in 
their quest to find a compromise agreement. The mediator can help with 
the negotiation process, but he docs not have the authority to dictate a 
solution. He might not even choose to suggest a final solution; rather, his 
purpose is to lead the negotiators to determine whether there exist com- 
promises that would be preferred by each party to the no agreement alter- 
native, and to help the parties select on their own a mutually acceptable 
agreement. 
H. Raiffa, The Art and Science of Negotiation 23 (1982) (emphasis omitted). 



138 

1412 ViLLANOVA Law Review [Vol. 29: p. 1393 

thing that must be done before a final decision can be reached and 
what the likelihood is that their efforts could be derailed before frui- 
tion. That analysis would include factors such as the participation of 
others after the agreement is reached^^ or disapproval by agency offi- 
cials who did not participate. Mediation and negotiation in this con- 
text constitute a recognition that the great bulk of administrative 
hearings are settled, just like their civil counterparts. What is needed 
is to recognize and encourage the use of mediation as a means of fos- 
tering settlement. 

Arbitration.^^ Arbitration is widely used in the private sector for a 
variety of subjects. ^ Several agencies and programs are beginning to 
use variants of it instead of formal administrative hearings. For ex- 
ample, the Merit Systems Protection Board (MSPB) began offering it 
as an alternative means of hearing appeals from adverse action deter- 
minations against government employees.^' The Commodity Futures 
Trading Commission (CFTC) has just inaugurated a program of ar- 
bitration for customer claims of $15,000 or less.^^ Arbitration is also 
used in resolutions of disputes under the Superfund,^^ disputes involv- 
ing patent issues,^"* disputes in age discrimination cases,^^ and for de- 
termining the payments from users of pesticide data.^ 

These programs typically use regular presiding officers as the ar- 
bitrators and, unlike traditional arbitration, the parties are not able 

88. For example, the Occupational Safety and Health Review Board can disap- 
prove an agreement entered into between OSHA and a company that settles a cita- 
tion issued by OSHA for violation of a standard. 

89. Professor Raiffa has described the role of an arbitrator as follows: 

An arbitrator (or arbiter), after hearing the arguments and proposals 
of all sides and after finding out "the facts," may also [like the mediator] try 
to lead the negotiators to devise their own solutions or may suggest reason- 
able solutions; but if these preliminary actions fail, the arbitrator has the 
authority to impose a solution. The negotiators might voluntarily submit 
their dispute for arbitration, or the arbitration might be imposed on them 
by some higher authority. 
H. Raiffa, supra note 87, at 23 (emphasis omitted). 

90. See Perritt, supra note 9, at 1266-70. 

91. Merit Systems Production Board: Practices and Procedures, 5 C.F.R. 
§§ 1201.200-.221 (1984). 

92. See 17 C.F.R. §§ 180.1-.6 (1983). 

93. See Comprehensive Environmental Response, Compensation, and Liability 
Act, 42 U.S.C. § 9612(b)(4) (1982). 

94. &/35 U.S.C. § 135 (1982); 37 C.F.R. §§ i.201..288 (1984). 

95. See Equal Employment Opportunity Commission — Procedure — Age Dis- 
crimination in Employment Act, 29 C.F.R. §§ 1626. 15-. 16 (1983). 

96. See Federal Insecticide, Fungicide, and Rodenticidc Act, 7 U.S.C. 
§ 136a(c)(l)(D)(ii) (1982). The constitutionality of this provision has recently been 
upheld as a taking for public use. See Ruckelshaus v. Monsanto Co., 104 S. Ct. 2862, 
2882-83 (1984). 



139 

1983-84] Administrative Law 1413 

to select the arbitrator from among a panel of candidates offered by 
some third party. The decisions are based on agency precedent but 
are not themselves precedential in any way. The cases which use ar- 
bitration procedures are those where time is quite important to at 
least one party,^^ and no complex factual or policy issues are 
presented. They are generally based on some sort of discovery or 
other method of requiring the parties to tender relevant data, not in 
exhaustive detail but at least sufficient for decision. The arbitrator's 
decision may be, as in the case of the CFTC, simply an award^® or, as 
in the case of the MSPB, a brief recitation of findings of fact and 
conclusions of law. The agency itself has limited review authority, 
but even if it does not reverse the arbitrator's decision, it may not 
necessarily mean the agency agrees with the result. The review is 
summary, akin to the judicial review of an arbitration award, except 
that the agency will also look for gross errors in applying agency pre- 
cedent. The full nature of judicial review has yet to be developed: to 
the extent the award becomes an agency "order," it is subject to judi- 
cial review under the Administrative Procedure Act. Just what sort 
of review that is to be and the record on which the court would base 
its review has yet to be developed.^ In short, this area of administra- 
tive law is only beginning. It may be, however, that when all is said 
and done, it may substantially resemble some procedures that have 
been around a long time. Even if that is the case, the area will profit 
from sights gained by private sector experience. 

Minitrials. '^ The minitrial that has been developed for commer- 
cial litigation, in which the lawyers for the opposing sides present 
summaries of their cases in the presence of representatives of the par- 
ties who are authorized to negotiate a settlement of the dispute, has 
been used successfully in an enormously complex contract dispute 

97. That only one of the parties is in a hurry for resolution can present problems 
when both parties must consent to using the process, since the other one will often 
profit from delay and is not likely to consent to the process. In some cases, however, 
the parties would simply like to get the matter resolved, and hence both would agree. 
The question of whether one party can force the other into use of the process, or 
whether the forum agency can direct that it be used, needs to be explored. 

98. One reason for this is that a decision might have collateral effects, and it was 
thought that avoiding them might make the process attractive to some parties that 
would otherwise profit from delay. 

99. To the extent the parties agree to the process, just as in private sector arbi- 
tration, a limited form of judicial review may be appropriate on the ground that the 
parties made the choice that it was in their overall interest to use the process and 
hence should not complain if they lose. If, however, the process is forced on a party, a 
different standard might apply. 

100. See Lambros, The Judge's Role in Fostering Voluntary Settlements, 29 ViLL. L. 
Rev. 1363 (1984). 



140 



1414 



ViLLANOVA Law Review [Vol. 29: p. 1393 



with the National Aeronautics and Space Administration. '^^ Consid- 
erable work is now being done on the application of the technique to 
more routine — but nonetheless complex — disputes that are heard 
before the Defense Department's Board of Contract Appeals. 
Although not quite administrative adjudication, the Department of 
Justice was reviewing the minitriaFs applicability in settling litigation 
over contract claims in lieu of full trials before the courts. Interest- 
ingly, however, the government may be prohibited from entering into 
an arbitration agreement to resolve its controversies because it is pro- 
hibited from relying on arbitration to resolve claims involving ques- 
tions of legal liability. '^^ 

C. Other Forms of Administrative Action 

While the APA, and hence the legal writing, focuses virtually 
exclusively on rulemaking and adjudication, there are many other 
types of agency decisions, and many of them could be improved by 
invoking the ADR experience. For example, the staff of the Federal 
Energy Regulatory Commission regularly acts as a quasi-mediator 
among competing factions over environmental conditions that are 
placed on low-head hydroelectric plants. *^^ Agencies have entered 
into mediation over a range of other decisions involving issues such as 
the protection of endangered species or the technologies required to 
meet standards issued under the Clean Air Act.^^"* 

What is needed for this category of decisions is a recognition of 
the availability of techniques that may be used by agencies to reach 
far more satisfactory decisions than would be possible if the agency 
arrogated them to itself. 



101. Johnson, Masri & Oliver, Mimtnat Successfully Resolves NASATRIV Dispute, 
Legal Times, Sept. 6, 1982, at 13, col. 1. 

102. SeeT^X U.S.C. § 1346 (1982). This section prohibits the government from 
expending public funds for the work of any commission, council, board or similar 
group not authorized by law. The Comptroller General has opined that this section 
prohibits the government from entering into arbitration agreements to resolve ques- 
tions involving the rights of the United States, absent express authorization. 8 Op. 
Comp. Gen. % (1928); 7 Op. Comp. Gen. 541 (1928). However, this bar does not 
prevent the government from entering into arbitration agreements for the purposes of 
determining a factual question of reasonable value, which docs not impose any obli- 
gation on the government and docs not leave "questions of legal liability" for deter- 
mination by arbitrators. 20 Op. Comp. Gen. 95, 99 (1940); 22 Op. Comp. Gen. 140 
(1942). 

103. See Kerwin, Environmental Analysis in Hydropower Licensing: A Model for Deci- 
sionmaking, Envtl. Impact Assessment Rev., June 1983, at 131, 134. 

104. See Susskind, Environmental Mediation and the Accountability Problem, 6 V-'t. L. 
Rev. 1, 2 n.6 (1981) 



141 
1983-84] Administrative Law 1415 

D. Alternatives in Lieu of Agency Action 

Section II of this paper argued that much of modern regulation 
can be viewed as a combination of a failure of substantive standards 
by which to judge conduct and, perhaps even more importantly, the 
lack of a suitable mechanism by which rights can be enforced. Profes- 
sor Perritt's hapless student is a perfect example. '^^ When confronted 
with defects in a new car, he sought to enforce his right under the 
warranties against its manufacturer; he even invoked the dispute reso- 
lution mechanism created for this purpose by the auto company and 
the Better Business Bureau, but it was unavailing. Without satisfac- 
tion, he had to begin to build power, and that was successful only 
through the invocation of litigation. Coercion won out. 

The question here is, what if the student were not a law student 
itching for some practical experience but rather someone for whom 
the prospect of litigation would be expensive,'^ emotionally wrench- 
ing, '°^ and time consuming? The likely reponse would be: nothing, at 
least nothing short of a few letters and some frustration. If that is the 
case, then the lack of a dispute resolution mechanism (DRM) leads to 
a quasi-externality in which the buyer, who may have reasonably ex- 
pected a product free of defects or the need of repair, must absorb the 
resulting costs. The classic response to that is regulation — an agency 
will prescribe conduct and prosecute violations.*^ Thus there is a 
clear trade-off between a reasonable, responsive DRM and regula- 
tion. If the arbitration program that the student used had teeth *°^ 
and the arbitrator was a reponsible neutral party, the issue may well 
have been defused. The company would likely have corrected the 
difficulties instead of dallying, since it too would likely want to avoid 

105. See Perritt, supra note 9, at 1223-24. 

106. The transaction costs of bringing a lawsuit against an auto company to 
force the repair of a defective automobile would likely exceed the value of the defects 
themselves. Thus, unless some statute, regulation, or common law precept provided 
for a shifting of the fees, the consumer might decide not to bring the litigation. Even 
if the American rule were abrogated, the consumer would still face the gamble of 
whether the claim was sufficiently meritorious to merit the award of fees. 

107. The plethora of currently popular books on assertiveness and winning 
through intimidation must surely reflect a timidity on the part of most individuals 
when faced with having to pursue something they believe is rightfully theirs in the 
face of either indifference or hostility. 

108. See notes 3-5 & 31-32 and accompanying text supra. 

109. It should be noted that in fact many of the arbitration/mediation pro- 
grams for auto warranties are binding on the auto company. See Brenner, Dispute 
Resolution Movement Gathers Momentum^ Legal Times, Mar. 21, 1983, at 27, col. I. How 
they work in practice and what happens if their orders are disregarded need to be 
appraised. 



142 
1416 ViLLANOVA Law Review [Vol. 29: p. 1393 

the costs of subsequent proceedings and the ill-will generated by an 
unpopular result. 

As a result of all of this, one of the areas of administrative law 
that deserves careful attention is the establishment of private sector 
DRM's as a substitute for agency regulation or hearings. Several pro- 
grams, for example, either require or permit private organizations to 
establish a forum for reviewing complaints or other issues that arise 
with respect to some particular activity. ' *° If more of such programs 
are not created, the government agencies will have to play a larger 
role in resolving contests. 

The use of DRM's is also likely to be an important aspect of 
proposals for "self-regulation." It is not enough simply for companies 
to argue that they are taking appropriate action "voluntarily," and 
hence there is no need for government intervention, unless there is a 
correlative right on the part of the beneficiaries of that action to en- 
force it in some manner. In some cases, of course, that will be 
through market transactions, but in others some sort of DRM will be 
needed to ensure that the promised actions, as in Professor Perritt's 
example, are discharged. 

The pressing questions, then, are what should the characteristics 
of those DRM's be and what relationship will they have to the 
agency? How, for example, do you ensure neutrality? How coercive 
is the decision to be, and on whom? Is the DRM's use mandatory on 
the consumer? May a "defendant" decline its use, and, if so, with 
what result? What sort of due process rights are provided the con- 
sumer and the company against whom an order might run? What 
appeal rights are there and to what body — higher private sector 
authority, the agency, or a court? Is deference given the DRM's deci- 
sions or is there de novo review? How expensive will it be? How 
much will the reviewing authority be bound by precedent and how 
much will it seek justice under the circumstances? We will need to 
develop guidelines and insights into this emerging area. That will 
entail defining the procedures, or general principles, that are to be 
used in embedded dispute resolution mechanisms that will be suffi- 
cient to ward off government action. ' * • The Federal Trade Commis- 

1 10. See^ e.g.y Securities Industry Conference in Arbitration, Securities Exchange 
Act Release No. 13,470 (Apr. 26, 1977); Magnuson-Moss Warranty Act, 15 U.S.C. 
§2310 (1982). 

111. The violation of the minimal rules of procedure could result either in the 
agency's resolving the underlying dispute or the agency taking action against the 
organization that was supposedly responsible for compliance with the general proce- 
dures. While invalidated under the statute under which it operated, the Federal 
Trade Commission took this approach in the vocational school rule when it imposed 
requirements that were prescribed for the purpose of preventing unfair practice, and 



143 

1983-84] Administrative Law 1417 

sion has taken an initial step in this direction. Under the Magnuson- 
Moss Warranty Act, warrantors that incorporate a dispute settlement 
program must comply with the standards for those programs that the 
Commission has defined in its Rule on Informal Dispute Settlement 
Procedures.* '2 Another example is the self-policing rules of the stock 
exchanges."^ They operate under the supervision of the Securities 
and Exchange Commission, but with relative autonomy provided the 
procedural standards are met. 

IV. The Future of Administrative Procedure 

The future of the use of alternative means of dispute resolution 
— or, if the term "dispute" or "conflict" is somehow inappropriate, of 
alternative ways of resolving issues that are complex and affect several 
parties — by the government appears promising. But it will not come 
automatically, and several hurdles exist that need to be addressed. 

A. Familiarity 

Undoubtedly the greatest need is simply to generate familiarity 
with the attributes of the range of alternative procedures. Agencies, 
like most people, are likely to be a little leery of unknown processes. 
As such, they would be unable to determine whether it would be in 
their interest to use them. Moreover, agencies always run the risk of 
judicial and congressional oversight, so they must also be confident 
that the new processes meet the demands placed on them from the 
outside. 

This will come from several sources. First, it is always helpful if a 
complete model is created and analyzed so the agency can determine 
whether it meets its needs, and doing so removes some of the fear of 
the unknown. Second, the experience of other agencies is invaluable 
because it reduces the risk of developing a new approach. Third, the 
growing acceptance and experience in the private sector will lap over 
into the administrative process. That is clearly what is happening 

was prepared to treat a violation of those requirements as an unfair trade practice per 
se. See Katherine Gibbs School, Inc. v. FTC, 612 F.2d 658 (2d Cir. 1979). For further 
discussion of the Katherine Gibbs decision, see note 21 and accompanying text supra. 
General Motors Corporation recently entered into a consent decree with the 
Federal Trade Commission over the repair and replacement of defective engines. TTie 
decree provides for a system of arbitration, which is binding on GM to determine the 
extent of liability and the repairs to be performed. This dispute resolution mecha- 
nism was accepted in the face of those who argued for more stringent mandatory 
actions. 5>r General Motors Corp., 3 Trade Reg. Rep. (CCH) \ 22,010 (1983). 

112. 16C.F.R. §703 (1984). 

113. ^<' Silver v. New York Stock Exch., 373 U.S. 341 (1963). 



144 

1418 ViLLANOVA Law Review [Vol. 29: p. 1393 

with the minitrial, for example. ••"* Fourth, it will come simply 
through talk and through discussions, such as this Symposium.*'^ 

B. Particular Needs 

The government also has some particular needs that must be ad- 
dressed in some manner. 

1 . Negotiation/ Mediation 

There is sometimes a peculiar problem that arises when the gov- 
ernment reaches a decision by negotiation with the interested parties 
or, worse, with only some of them. The integrity of the negotiation 
process is generally assured by the self-interest of each party: no one 
will agree unless they think they are better off for doing so, as com- 
pared with the available alternatives. But it is not always clear just 
what the government's interest is, and someone could be accused of 
selling out its substantive interest to gain some other benefit, such as 
political favors or a new job for the bureaucrat. In the abstract such 
motives may be impossible to detect, and hence any government offi- 
cial who participates in the negotiations may be vulnerable to wholly 
baseless attacks. Thus, a timid official may be reluctant to risk that 
exposure. As a result, it may be necessary in some programs to create 
a mechanism to protect the integrity of negotiated decisions. That 
could come through a board of senior officials that reviews settle- 
ments,**^ a structured settlement process, publication of a proposed 
settlement and its supporting reasons for comment,'*^ or some other 
mechanism. 

2. Acceptance 

Some officials are likely to resist the use of some of the alterna- 
tives on the grounds that they are inconsistent with the agency's role 
as the sovereign. That is especially the case with respect to mediation 
and negotiation, although it would also likely apply in arbitration. In 
the csise of mediation/negotiation, the agency is more likely to have 

114. i&^ Johnson, Masri & Oliver, supra note 101, at 13. 

1 15. For example, one government official had been skeptical about some of the 
alternative processes, but decided to accept their merit because they were frequently 
discussed with seeming approval by a variety of well-respected individuals and 
interests. 

1 16. The Attorney General must approve all tort claims settlements of litigation 
that are worth more than $25,000. Federal Torts Claims Act, 28 U.S.C. §2671 
(1982). 

1.1 7. The Federal Trade Commission publishes consent decrees for comment in 
the Federal Register. 



145 

1983-84] Administrative Law 1419 

only an illusion of sovereignty rather than sovereignty itself. That 
results from a confusion of the authority to take some action with the 
power Xo do so. The reason negotiation may be an attractive alterna- 
tive is precisely because of the countervailing power that others have. 
For example, an agency may unquestionably have the authority to 
issue a rule but its efforts to do so can be frustrated by others."® 
Thus, direct discussions may not be an abdication of authority or sov- 
ereignty but a very real way of furthering the agency's interest: it will 
continue to represent whatever interest it represents in traditional 
proceedings but is now in a position to gain information and accept- 
ance of a mutually developed approach. Since the parties in interest 
concur in it, they are also more likely to be satisfied with the result 
and comply. But that reluctance to yield some perceived power must 
be overcome. 

3. Institutionalization 

Premature institutionalization through codification or rigid re- 
quirements should undoubtedly be avoided, although there may well 
be pressure to do so. We clearly need time to experiment and get 
comfortable with the process. But, once we have some understanding 
of suitable approaches, some sort of institutionalization could be 
quite helpful in overcoming the difliiculties discussed above. 

V. Conclusion 

In short, the future of alternative means of dispute resolution in 
the administrative process would appear to be strong. Indeed, the 
two have a long and complex history. Moreover, the needs of the 
administrative process have never been greater: to cope with massive 
caseloads; to develop new alternatives to coercive regulatipn; and to 
resolve enormously complex litigation.*'^ The means of resolving is- 
sues that are currently under discussion hold a significant promise for 
the administrative process. 



1 18. For a particular example of this, see text accompanying notes 68-69 supra. 

119. One can only imagine the enormous complexity that will be involved in 
litigation over the failure of two communication satellites that were unsuccessfully 
launched from the space shuttle. A controversy of similar complexity, indeed also 
involving satellites, was resolved through the use of a minitrial. Johnson, Masri & 
Oliver, supra note 101. Whether an alternative approach is merited in these instances, 
it is clear that the complexity of the issues presented are at an all time high, both in 
their technology and, when considering the social issues involved in government dis- 
putes, in their demography. 



147 



The Applicability of 

Alternative Dispute Resolution Techniques 

to 

Government Defense Contract Disputes 



Prepared for Antonia Handler Chayes 
Chairman, Endispute Incorporated 

by 

Barbara Zadina Korthals-Altes 

John F. Kennedy School of Government 

Harvard University 

May 1986 



148 



EXECUTIVE SU>H4ARY 

Findings 

The use of Alternative Dispute Resolution (ADR) techniques 
to settle government defense contract disputes holds promise as a 
quicker and cheaper alternative to the currently oversubscribed 
Board of Contract Appeals (BCA) system. However, with experience 
to date limited to two successfully resolved cases in the Army 
Corps of Engineers, additional empirical data is required. A 
pilot program involving disputes from all branches of the armed 
services to be resolved through ADR processes would provide a 
broader database from which decisions on future legislative 
amendments could be made. 

OVggvtgw 

Excessive litigation, heightened formality, and a growth in 
the number of contract dispute appeals have dramatically 
increased the time and cost of pursuing a claim before the 
government BCA. A proposal to employ ADR techniques such as 
arbitration, mini-trials, mediation, and factfinding to 
supplement the BCA system has drawn a generally favorable 
response. Widespread dissemination of information on these 
alternatives and their benefits is now needed, to overcome the 
misconceptions and general unfamiliarity that block their 
acceptance. 



149 



I. STATEMENT QE, PROBLEM 

The time and cost of resolving government contract disputes 
has risen dramatically over the years. The Boards of Contract 
Appeals (BCA), once a streamlined alternative to the congested 
courts, are now burdened by excessive litigation and increased 
formality. The volume of disputes presented before the Boards has 
also grown with the increase in federal procurement spending and 
accompanying oversight. The number of cases filed with the Armed 
Services Board of Contract Appeals (ASBCA), the largest 
administrative board of contract appeals, jumped from 974 cases 
in fiscal 1981 to 1273 cases in 1982. tlJ As these Boards 
inherit the drawbacks of the courts they were designed to 
replace, officials are once again exploring faster and cheaper 
alternatives . 

The Administrative Conference of the United States is 
currently examining the potential uses by federal agencies of 
arbitration, mini-trials, mediation, factfinding, and other 
alternative dispute resolution (ADR) techniques. These techniques 
are increasingly being applied to a broad range of conflicts in 
both the public and private sector, yielding settlements that are 
quicker, less expensive, less contentious, and generally more 
acceptable to the parties involved. Application of ADR techniques 
to date in the defense contracts arena has been limited to two 
mini-trials successfully conducted by the U.S. Army Corps of 
Engineers in a recent pilot program. 



1. Harter, Dispute Resolution Procedures and the 
Administrative Process . Comment Draft, 23 Feb 1986, p. 94. 



150 



This report presents an analysis of the issues surrounding 
the introduction of ADR methods to the defense contract dispute 
settlement process, and offers some conclusions as to their 
feasibility. 

Current BCA Procedure 

Under the Contract Disputes Act of 1978, all government 
contracts must include clauses identifying the procedures for 
settling disputes resulting from the contract. The Act stems from 
a report issued by the Procurement Commission in the early 1970 's 
that called for sweeping reforms in the procedures available for 
resolving government contract claims. The Disputes Clause defines 
"claims" as written demands or assertions seeking as a matter of 
right the payment of money, adjustment, interpretation of 
contract terms, or other relief. [2] 

Dispute claims are filed by the government or the 
contractor with a contracting officer. The contracting officer 
has 60 days to issue his decision or, for claims over $50,000, to 
notify the parties of the time extension required. Failure to 
issue a decision within the stated time period defaults to a 
ruling against the claim. Decisions may be appealed within 90 
days of the ruling to an administrative Board of Contract 
Appeals, or taken directly to the U.S. Claims Court within 12 
months of the decision. 

The Boards of Contract Appeals (BCAs) were established to 
provide an alternative to the Claims Court that was "more 



Goverment Contracts Report , para. 24,050 



I 



151 



informal and expeditious and less expensive than comparable 
proceedings in court." [3] Executive agencies either form their 
own agency Board if they handle a large volume of contract 
dispute claims, or arrange for appeals to be heard by another 
agency's Board. Claims under the Department of Defense are 
resolved in the Armed Services Board of Contract Appeals (ASBCA). 
Special procedures for expedited disposition of smaller 
claims are available at the contractor's request. The Small 
Claims Procedure for disputes under $10,000 requires decision of 
the appeal, whenever possible, within 120 days; the Accelerated 
Procedure for claims under $50,000 requires a decision within 180 
days . 

Problems yr^t\\ ths. ASPCA Today 

The ASBCA originally succeeded in providing a relatively 
quick, uncomplicated, and inexpensive means of resolving contract 
disputes. Contractors frequently appeared pro se, representing 
themselves, and claims were often settled within one year. Yet 
the ASBCA has become legally complex, and the time and costs 
of pursuing a claim have risen dramatically. The average case now 
lasts from two to four years, often longer. The expense and 
disruptive effect on management pose significant problems for 
both the contractors and the government. 
Underlying Causes 

According to the Administrative Conference of the United 
States, the added procedures which have complicated the BCA 



3. Government Contracts Report , Para. 24,225 



152 



system derive £rom the following: 

"...judicial decisions establishing detailed due process 
requirement; lawyers seeking to preserve their clients' every 
arguable advantage; political compromises in Congress; a desire 
to control bureaucracy; the public's interest for open government 
and participation in its decisions; and even agencies' endeavors 
to survive a judicial "hard look"." [4 1 

The changing roles of lawyers and government contracting 
officers have also contributed to the problem. 

Government Contract Lawyers . The increased legal complexity of 
the Boards parallels the growth of government contract lawyers. 
Law firms specializing in government contract law were non- 
existent prior to the introduction of the BCA system in 1968. As 
recently as 1971, 40 to 50 percent of the cases before the ASBCA 
were pro se's with contractors representing themselves. When 
deregulation cut the demand for lawyers in other areas, the 
contract dispute arena became a lucrative substitute. "Government 
contract law was considered the bottom of the totem pole," a 
prominent attorney at United Technologies notes. "Now it has 
developed into a money-maker and area of expertise. Today I'd be 
suprised if there were four or five pro se cases a year." These 
lawyers brought to the Boards their understanding and use of 
legal complexities. 

Contracting Officers. There is an unspoken reluctance of the 
contracting officers to make decisions that might be reviewed 
poorly by government auditors. The Judgment Act has created a 



4. Administrative Conference of the US, "Agencies' Use of 
Alternative Dispute Resolution Techniques", Federal 
Register, 8 April 1986, #11928. 



153 



monetary incentive to leave disputes unresolved as well, as the 
contracting officer is responsible for paying claims from his own 
budget only if he has issued the decision. As a result, it has 
become difficult to settle disputes at this level and more cases 
are sent to the ASBCA for judgement. Where in the past only the 
most difficult cases continued on, the contracting officer is now 
less effective in this screening role. 

Advantages oi ADB. T^qnpiqu^s 

Advocates propose supplementing the BCA system with ADR 
techniques, most notably the mini-trial. ADR methods are employed 
with success in the private sector, in areas ranging from family 
disputes and neighborhood justice centers to consumer complaints 
and union/management negotiations. When used in appropriate 
circumstances, ADR techniques facilitate dispute settlement at 
less cost, in a shorter amount of time, and with greater 
satisfaction for the parties involved than do traditional 
processes. 

The main advantage of ADR techniques is legal simplicity, 
which translates into lower attorney fees and quicker decisions. 
Parties often agree upon a time limit for proceedings. They also 
offer privacy, since all proceedings are confidential and no 
transcript is made, thus exempting the proceedings from the 
Freedom of Information Act. The focus on cooperation, rather 
than the adversarial nature of court litigation, produces greater 
satisfaction with the final decision for both sides and helps to 
diffuse future tension in ongoing relationships. 



154 



Formal application of ADR techniques in the defense industry 
to date has been limited to two mini-trials in the past two 
years under an Army Corps of Engineers pilot program. Both were 
successfully resolved within the allotted time period of one to 
three months, at a considerable savings to the Corps. The larger 
case of the two involved a $55.6 million claim which was 
eventually settled for $17.2 million, and the contractor involved 
states that he would gladly use mini-trials for future disputes. 
The Naval Air Command is preparing for a mini-trial scheduled to 
take place in July 1986. 

The first reported use of a mini-trial to solve a government 
procurement contract dispute was held between the National 
Aeronautics and Space Administration (NASA) and TRW, Inc. in 
1982, involving a NASA communications satellite program. This 
successful mini-trial is reported to have saved more than $1 
million in legal fees alone. 

R^q^ty^^fte^>t8 £oz Use of ADR 

Not all contract disputes are suitable for ADR techniques. 
Appropriate cases contain factual disputes which do not require 
new interpretations of the law but for which clear legal rules or 
standards needed to resolve the issue have already been 
established by statute, precedent or rule. Cases must not involve 
the establishment of major new policies or precedents. ADR 
processes can be valuable when the issues are highly technical 
and require specialized expertise by the decisionmakers to reach 
a decision, or when parties desire privacy as in highly 



155 



classified matters. ADR methods are inappropriate when the case 
significantly affects persons who are not parties to the 
proceeding or when a full public record of the proceeding is 
important . 

II. ANALYSIS OF t^gUES 

There are no forceful arguments for opposing the proposed 
application of ADR processes to government contract disputes. A 
request for comments on the Administrative Conference proposal in 
the April 8, 1986 Federal Register drew a generally favorable 
response, as did subsequent hearings on the subject in early May. 
There are, however, several issues which could potentially hinder 
its widespread acceptance. This section briefly discusses those 
issues and analyzes their implications. 

The two major reservations expressed at the Administrative 
Conference hearings were raised by the Department of Justice and 
the General Accounting Office (GAO), and centered around the 
risks of investing the authority to settle disputes with non- 
government arbitrators. Both agencies warned against the legal 
implications of delegating major policy decisions to non- 
government participants unfamiliar with the law. Unlike disputes 
in the private sector, decisions based on agreement between the 
parties alone risk violation of existing laws, regulations, or 
decisions of the GAO. To ensure that settlements comply with 
legal restrictions, the arbitrators or government principals 
selected to settle a case must understand the governing statutes 
and/or consult legal experts prior to settlement. Use of top 
level managers familiar with regulations as mini-trial 



156 



principals, similar to the Corps of Engineers' pilot program, 
will help alleviate this problem. Arbitrators will eventually 
learn the limits of the law as they participate in more disputes. 
The GAO also fears an imagined bias of private arbitrators 
to resolve claims by compromise — by splitting them down the 
middle. Parties might accept such a decision on a "nuisance 
argument" they say, simply thankful to end the dispute. I submit 
that this is a naive view of the sophistication of professional 
arbitrators. Such actions can be discouraged by requiring 
decisions to include a brief explanation of their factual and 
legal basis, as proposed by the Administrative Conference. The 
GAO would also retain its traditional settlement authority to 
approve all government payments. 

The hidden agendas of participants may impede the promotion 
and acceptance of ADR processes. Many of the most likely 
instigators of such techniques can not be depended on to advance 
their use, as they may conflict with other interests. 

Lawyers . Several factors deter lawyers from encouraging 

clients to use ADR methods to solve disputes: 

quicker settlements and a diminished role for lawyers 
mean lower legal fees; 

-- client control over the outcome may be psychologically 
threatening; 

— suggesting the use of non-adversarial methods may 
be perceived as a sign of weakness; and 

— many lawyers are unfamiliar with ADR processes. 

Once clients become more aware of ADR techniques through 



157 



other channels and insist on their use, lawyers will have to 
f provide them. However, lawyers are not likely to assist with the 
educational process. [5) 

Judges . Ideally, BCA administrative judges should identify 
those cases that are appropriate for ADR methods and suggest 
their use to the parties involved. Yet a recent study reveals 
that 60 to 70 percent of BCA judges are unwilling to "manage" 
hearings and feel no responsibility to resolve cases in the most 
expeditious way. According to the study, judges view themselves 
as merely onlookers who ultimately make the decision. However, if 
the Secretary of Defense ordered ASBCA judges to actively promote 
ADR processes as part of an effort to alleviate the backlog of 
cases waiting to be heard, these judges would have no other 
choice. 

Management . One Corps of Engineers official reports that 
while top management was satisfied with the Corps' mini-trials, 
there was resistance at lower levels by managers who resented 
being overruled by their superiors. They complained that the time 
frame of the mini-trial was too short to afford a complete airing 
of their arguments. Yet Professor Eric Green of Boston University 
Law School, an expert on ADR, states that he has seen very 
complex cases boiled down for adequate presentation within a 
short time period. Until more empirical evidence of this is 
available to convince reluctant lower management, mini-trials and 
other ADR techniques may require advocacy from the top down. 



5. Goldberg, Green, and Sander, Dispute Resolution 
pp. 487-489. 



158 



Government . Government procurement problems have received 
considerable attention in the press lately. To the extent that 
resolving a case is not the government's objective so much as 
sanctioning a contractor as an example to others, as in the case 
o£ General Dynamics, ADR processes will not be successful. The 
determination of both parties to achieve a settlement is a vital 
prerequisite. 

Formalized ADR processes may attract cases that would 
otherwise be settled out of court back into the BCA system, 
limiting the potential for alleviating congestion and backlogs. 
Well over half of the contract dispute cases are currently 
resolved before they reach the BCA through traditional means of 
negotiation. Once the best alternative to the lengthy and 
expensive BCA, such informal settlements may be abandoned for the 
more structured ADR processes. To achieve a flexible capacity for 
providing ADR services, the government could retain a certain 
number of arbitrators, mediators, etc. "on call", to be employed 
when the full-time staff are oversubscribed. 

Every effort must be made to protect the informal, 
unregulated spirit of ADR. As with anything in the government, 
the growth of ADR processes in the contract dispute arena will 
induce statutes to insure the conformity to standards, until the 
efficiency of these methods is threatened by the constraints. 
Oversight should be restricted to reviewing the legality of 
decisions to prevent stifling the process. 

Differing Contractor Benefits 

The potential benefits from the widespread implementation of 



10 



I 



59 



ADR techniques In the defense industry varies with the size and 
legal orientation of the contractor. A closer look at a large 
corporation such as United Technologies illustrates this point. 
The legal counsels at United Technologies state that, as a 
practice, they are less inclined to litigate against the 
government over a dispute and more likely to settle out of court. 
As the nation's 7th largest defense contractor, they acknowledge 
the influence possessed by large firms to negotiate settlements 
with government officials outside of BCA channels, explaining 
that large contractors have a lot to offer in such circumstances. 
They have the resources to write off a large claim if necessary 
and not feel the impact as much as smaller firms would. Those 
cases they do bring before the ASBCA usually involve policy 
issues or legal disputes which will establish precedent and 
therefore would be unsulted for ADR methods. As a result, one 
would expect that smaller and mid-sized contractors who depend on 
the BCA process would obtain a greater benefit from the 
availability of ADR methods, and are likely to be more receptive 
to government efforts to promote their use. 

III. CONCLUSIONS 

To date, no compelling arguments have been made against the 
use of ADR techniques to supplement the overworked BCA system. 
Both prior experience in the private sector and the limited 
application by the Corps of Engineers have produced attractive 
results. The government and contractors alike stand to benefit 
from the potential time and cost savings and decisions better 
tailored to their needs. 



11 



160 



Indeed, the expanded role for contractors and management in 
the dispute process offered by ADR methods seems compatible 
with the larger movement toward self-governance and increased 
responsibility advocated by the President's Commission on Defense 
Management. In its report presented to the President in late 
February, the Packard Commission stressed the need for 
contractor accountability through the adoption of better internal 
auditing systems as a preventive means of monitoring compliance 
with procurement regulations. As the General Counsel of the 
Commission noted, the government wants the message clear that in 
the public-private partnership arena, the defense industry has a 
responsibility for self-review. 

As a concept, the use of ADR techniques in the realm of 
government contract disputes has already been promoted. The 
governing Council of the Administrative Conference of the United 
States on June 3rd approved a draft proposal calling for 
agencies' adoption of ADR procedures. The proposal will be 
submitted for official approval before the entire Conference on 
June 20th. 

Advocates must now focus on selling the use of these 
techniques on an individual basis. Widespread dissemination of 
information on the processes and their benefits is needed, to 
overcome the misconceptions and general unfamiliar ity that block 
their acceptance. One step in this direction might be to organize 
symposiums for contractors and government officials where 
participants from the two successful Corps of Engineers mini- 
trials discuss their experience and are available for- informal 
questioning. Of course, there will always be cases where parties 

12 



161 



simply want their day in court, and are willing to accept the 
lengthy hearings and high costs there. Yet both contractors and 
lawyers whom I spoke with stated they would use ADR procedures 
when appropriate if they were institutionalized as an available 
option. 

With so little empirical data available on this subject, 
there is a pressing need for further experimentation. Two mini- 
trial cases are not sufficient to justify legislative amendments. 
The government should establish additional pilot projects that 
include other branches of the armed forces, followed by careful 
studies on the results. Administrative judges of the ASBCA should 
be directed to select the appropriate cases for the pilot program 
to ensure participation. The Corps of Engineers has experienced 
difficulty, despite earlier success in the program, to attract a 
third case for mini-trial use. 

Only when further data has been accumulated can the decision 
be made on whether ADR techniques merit statutory changes. In 
this era of drastic budget cutting, however, any proposal which 
offers the potential for reducing costs should be energetically 
pursued. 



13 



163 



Reprinted with permission from Missouri Journal of Dispute 
Resolution , Volume 1984, pp. 9-T3 

ALTERNATIVE MEANS OF DISPUTE 

RESOLUTION: PRACTICES AND 

POSSIBILITIES IN THE FEDERAL 

GOVERNMENT 

William French Smith* 



In the early nineteenth century Alexis de Tocqueville predicted that the 
law would become a secular religion in the United States, and that every im- 
portant political question would be turned into a matter for law and litigation.* 
History once again has proven de Tocqueville's remarkable prescience. Over 
the past two decades, there has been a staggering increase in litigation.* 
Americans now are filing more lawsuits than ever before, and are litigating a 
wide variety of disputes that previously had been resolved through other 
means.* 

At the same time, Americans also have extended the traditional adver- 
sarial process beyond the confines of the courtroom. From the perspective of a 
government attorney, the most significant extension has occurred in the area of 



* United States Attorney General; B.A., 1939, University of California at Los 
Angeles; LL.B,, 1942, Harvard University. 

1. A. DE Tocqueville, Democracy in America 231-41, 263-70 (G. Law- 
rence & J. Mayer cds. 1969) (1st ed. Paris 1835); Sarat, The Role of Courts and the 
^gic of Court Reform: Notes on the Justice Department's Approach to Improving 
Justice, 64 Judicature 300, 301 (1981). 

2. The workload at the federal level has increased enormously over the past two 
decades. In 1960, for example, there were 59,284 civil cases inititatcd in the federal 
district courts, and 61,829 were terminated. 1983 DiR. Admin. Off. U.S. Courts 
Ann. Rep. 114 [hereinafter cited as Report]. During the same year, 3,899 appeals 
were docketed in 11 regional courts of appeals, and those courts disposed of 3,173 
appeals. Id. at 97. For the year ending June 30, 1983, there were a record 241,842 civil 
filings in federal district courts, up 17.3% over the previous year. Id. at 114. The num- 
ber of cases filed in the United States Courts of Appeals also reached record levels in 
1983. The Courts of Appeals docketed 29,630 cases. Id. at 97. The number of appeals 
filed in federal courts is now more than 600% higher than it was in 1960, see id., and 
the increase at the district court level has been nearly 300%. See id. at 114. See gener" 
oily Meador, The Federal Judiciary — Inflation, Malfunction, and a Proposed Course 
of Action, 1981 B.Y.U. L. Rev. 617. 

3. As Chief Justice Burger noted in 1982, Americans have turned "to the courts 
for relief from a range of personal distresses and anxieties" and expected them "to fill 
the void created by the decline of church, family, and neighborhood unity." Burger, 
Isn't There a Better Way?, 68 A.B.A. J. 274, 275 (1982). 



164 

10 JOURNAL OF DISPUTE RESOLUTION [Vol. 1984 

administrative rulemaking, which now often contains all the elements of a ju- 
dicial proceeding, including rules of evidence, testimony, and cross- 
examination.* 

Increased use of adversarial procedures in the courts and administrative 
process has had serious consequences.' Regulatory proceedings have become 
more lengthy and complex as a result of conflict between the government and 
private parties,* and have all too often led to unnecessary and wasteful regula- 
tions.' Moreover, lawsuits involving the government have become more numer- 
ous. The number of lawsuits in which the United States was a party grew by 
more than 155% in the last decade: from 25,000 new lawsuits a year in 1970 
to 64,000 new lawsuits a year in 1980.* The accompanying costs to the govern- 
ment have increased at an even greater rate, with legal expenses of federal 
agencies estimated to have more than tripled in the decade of the 70's.* In a 
time of fiscal constraints, the government simply cannot afford these costs. 

Excessive government participation in the adversary process has had 
other, less tangible, drawbacks. One of the most significant is the unnecessary 
antagonism it has generated between the government and private parties. 
Partly because of the conflict created in litigation and administrative proceed- 



4. B. Owen & R. Braeutigam, The Regulation Game 23-24 (1978); 
Wright, New Judicial Requisites for Informal Rulemaking, 29 Ad. L. Rev. 59 
(1977). 

5. The adversary process has many benefits. It provides a strong incentive for 
those interested in the outcome of a dispute to present the best arguments for the deci- 
sionmaker to consider, and it thus is '*a powerful means of generating information.** 
Hartcr, Negotiating Regulations: A Cure for Malaise?, 71 Geo. L.J. 1, 19 (1982). 
Moreover, because each party knows the contentions of the other parties, he can point 
out errors in competing positions. Id.\ see Schuck, Litigation, Bargaining, and Regula- 
tion, Reg. July- Aug. 1979, at 26, 31. 

6. Cramton, Causes and Cures of Administrative Delay, 58 A.B.A. J. 937, 938- 
39 (1972); Fox, Breaking the Regulatory Deadlock, Harv. Bus. Rev., Scpt.-Oct. 
1981, at 97, 104; Hartcr, supra note 5, at 19; Morgan, Toward a Revised Strategy for 
Ratemaking, 1978 U. III. L.F. 21, 22 (1978). 

7. Fox, supra note 6, at 97. Fox has noted that the federal regulation of indus- 
try has suffered from a long history of confrontation between government and private 
businesses. As the regulatory process has become increasingly adversarial, both govern- 
ment and business have approached rulemaking as a battlegound in which combatants 
committed to fixed positions try to outlast each other through several stages of regula- 
tory and judicial conflict. Instead of attempting to resolve the issue at hand, the parties 
approach the process as an opportunity to build a record to later bring to court. More- 
over, the courts to which the parties finally turn to resolve their disputes are often ill- 
prepared to handle them. The parties do not settle the essential conflict between them, 
but rather expend their energies arguing minor procedural issues before a court which 
often has neither the technical expertise nor jurisdiction to resolve the underlying 
dispute. 

8. Report, supra note 2, at 121. 

9. Information obtained from the Bureau of Justice Statistics in June, 1983. 



165 
1984] FEDERAL GOVERNMENT 11 

ings, the public increasingly has tended to view the government as an adver- 
sary, rather than a servant of the public interest. 

Recognizing these adverse consequences, this Administration has sought 
to reduce the intensity of battle between the government and the public. With 
respect to the courtroom, the Department of Justice, among other things, has 
established a policy of litigating ?s a last resort, rather than as a first reaction. 
We also have sought to reduce government participation in administrative bat- 
tles by establishing alternative rulemaking procedures that are not dependent 
on adversarial proceedings. This article will examine a few of the steps taken 
by the federal government to put into practice alternative means of dispute 
resolution, and will discuss possibilities for other steps the government could 
take in the future. 

I. Alternative Dispute Resolution Processes: Practices of the 
Federal Government 

Alternative dispute resolution processes were developed by the private 
sector as a means of resolving controversies without some of the costs associ- 
ated with traditional litigation. Techniques such as arbitration and mediation 
have been used for many years in the labor field," and have recently been 
extended to minor disputes involving consumers, landlords and tenants, family 
members, and assorted damage claims." Unfortunately, governments, and 
particularly the federal government, have been slow to adopt these tech- 
niques." Federal officials have just begun to recognize the potential of alterna- 
tive dispute resolution processes and only recently have they tried to apply 
these processes in resolving controversies in which the government is a party. 

A. Alternatives to Traditional Rulemaking 

Perhaps the most promising alternative to traditional adversarial 
rulemaking now being explored in a number of federal agencies is ^'negotiated 
rulemaking." This procedure contemplates an informal process of bargaining 
among parties affected by a proposed regulation. The process is intended to 
culminate in an agreement that becomes the basis for an agency rule." The 
procedure, still in its infancy, usually takes one of two forms." 



10. See generally M. Bernstein, Private Dispute Settlement 315 (1968). 

11. See generally E. Johnson, V. Kantor & E. Schwartz, Outside the 
Courts: A Survey of Diversion Alternatives in Civil Cases (1977); Sander, Va- 
rieties of Dispute Processing, 70 F.R.D. Ill (1976). 

12. See infra notes 57-58. 

13. See generally Note, Rethinking Regulation: Negotiation as an Alternative to 
Traditional Rulemaking. 94 Ha^vI L. Rev. 1871 (1981). 

14. See Boycr, Alternatives to Administrative Trial-Type Hearings for Resolv- 
ing Complex Scientific, Economic, and Social Issues. 71 Mich. L. Rev. HI, 164-68 
(1972); Reich, Regulation by Confrontation or Negotiation?. Harv. Bus. Rev., May- 



166 

12 JOURNAL OF DISPUTE RESOLUTION [Vol. 1984 

In one approach, the government agency merely acts as overseer of the 
negotiations. The agency begins the process by publishing a description of a 
proposed rule topic in the Foderal Register and a general invitation to partici- 
pate in negotiations. The agency selects a manageable number of representa- 
tives from those responding to participate in the bargaining sessions. Agency 
officials are not present at these sessions. The negotiators develop a proposed 
rule through the process of compromise, which the agency then publishes 
along with a statement of basis and purpose drafted by the negotiators. There- 
after, the agency receives public comments, evaluates the negotiated proposal, 
and promulgates a final rule. 

In the second form of negotiated rulemaking, the agency actually partici- 
pates in the negotiations. After a number of private representatives are se- 
lected as negotiators, the agency presents them with its interpretation of the 
statute involved. Negotiations then begin, and because the agency is one of the 
negotiators, it must agree to all bargains. If the negotiators cannot agree, the 
notice and comment process begins under the current system. If the parties 
reach an agreement, the agency publishes the bargain as a proposed rule and 
accepts public comment. 

In either form, negotiated rulemaking offers a number of potential advan- 
tages over traditional adversarial rulemaking.** For example, negotiation may 
yield better rules. While the adversary system encourages parties to take ex- 
treme positions,** negotiation yields a pragmatic search for intermediate solu- 
tions. In negotiation, one party is more likely to discover and to consider eco- 
nomic, political, and other constraints on another party. In sum, the parties 
arc more likely to address all aspects of a problem in attempting to formulate 
a workable solution." 

Another possible advantage is that negotiated rulemaking may increase 
the acceptability of the rule promulgated by the agency. As one commentator 
has not^: 

The adversary process usually d^lares winners and losers and designates a 
**right" answer. Thus, adversaries may sec each other and the agency as ene- 
mies and grow alienated from the result. Negotiation, by contrast, fosters 
detente among participants and has few clear-cut losers. All suggest solutions 
and ultimately believe they have at lea&t partly consented to the compromise 



June 1981, at 82-86; Schuck, supra note 5, at 26, 32-34; Stewart, The Reformation of 
American Administrative Law, 88 Harv. L. Rev. 1667, 1790-802 (1975). 

15. Phillip Harter has noted a number of drawbacks to the adversarial process in 
his article on negotiated rulemaking. Harter, supra note 5, at 18-21; see also 1 C.F.R. 
I 305.82-4 (1983) (Administrative Conference recommended procedures for negotiat- 
ing proposed regulations). 

16. Darman & Lynn, The Business-Government Problem: Inherent Difficulties 
and Emerging Solutions, in Business and Pubuc Poucy 54 (J. Dunlop ed. 1980). 

17. See Eiscnbcrg, Private Ordering Through Negotiation: Dispute-Settlement 
and Rulemaking, 89 Harv. L. Rev. 637, 658-60 (1976). 



167 
1984] FEDERAL GOVERNMENT 13 

rule.** 

While negotiated rulemaking may offer these and other advantages,** 
there are a number of practical and legal constraints to its use. Not all issues 
lend themselves to negotiations. This is the case with most all-or-nothing is- 
sues, such as whether to require airbags in automobiles.** Broad issues that do 
not directly affect a narrowly concentrated group of persons or entities arc also 
unlikely to be capable of resolution in negotiated rulemaking.** 

It may also be difficult to select the appropriate representatives for the 
negotiations. The proposed rule will affect large numbers of people in many 
cases, but effective negotiations will be possible only if the number of negotia- 
tors is kept to a manageable size." Thus, negotiated rulemaking typically will 
require that groups or persons with a common viewpoint be represented by a 
single negotiator. The practical considerations aside, it may be legally impera- 
tive that this representative be an appropriate spokesperson for the affected 
group, so as to satisfy the Administrative Procedure Act, which requires that 
informal rulemaking reflect fair consideration of all affected interests," and 
due process, which mandates that valid interests not be arbitrarily excluded.*^ 

Perhaps the greatest obstacle to negotiated rulemaking is the statutorily 
and judicially imposed requirement for "open" agency proceedings. Experts in 
the area of negotiated rulemaking believe that it is a process best conducted in 
private.** Negotiators need to share freely their positions on different issues, 
without fear of reprisal from those not involved directly. The parties must be 
able to exchange confidential data that might be useful to the negotiations, 
without destroying its confidentiality. Similarly, a negotiator must have some 
assurance that a position he announces or data he presents will not be used 
against him in another forum, such as in litigation or a later adversary 



18. Note, supra note 13, at 1877. 

19. Negotiation can also reduce the costs of the decisionmaking process. First, it 
reduces the need to engage in defensive research in anticipation of arguments made by 
adversaries. It also can reduce the "time and cost of developing regulations by empha- 
sizing practical and empirical concerns rather than theoretical predictions.** Hartcr, 
supra note 5, at 28, 30. 

Negotiations also may reduce judicial challenges to a rule because "those parties 
most directly affected, who also are the most likely to bring suits, actually would par- 
ticipate in its development. Indeed, because the rule would reflect the agreement of the 
parties, even the most vocal constituencies should support the rule.** Id. at 102. 

20. Note, supra note 13, at 1880. 

21. Boycr, supra note 14, at 166. 

22. Darman & Lynn, supra note 16, at 54-55. 

23. Moss V. C.A.B., 430 F.2d 891, 894-95 (D.C. Cir. 1970); 5 U.S.C. § 553(c) 
(1982). 

24. See, e.g.. Gibson v. Bcrryhill, 411 U.S. 564 (1973). See generally Stewart, 
supra note 14, at 1756-60. 

25. See R. Fisher, Principled Negotiation: A Working Guide 142-47, 202 
(1979); Fox, supra note 6, at 104; Hartcr, supra note 5, at 84. 



168 

14 JOURNAL OF DISPUTE RESOLUTION [Vol. 1984 

rulemaking. 

Nevertheless, a number of legislative and judge-made rules may limit the 
use of private negotiations for rulemaking. Three well-known statutes immedi- 
ately come to mind. The Sunshine Act requires that meetings of collegial 
agencies be open to the public.** The Freedom of Information Act requires 
agencies to make their records available to the public.*'' Under the Advisory 
Committee Act, the negotiators might be required to publish minutes of each 
session in the Federal Register" and meet in public." 

The rule against ex parte communications may be the most serious judi° 
cially imposed obstacle to negotiated rulemaking where an agency participates 
as a negotiating party." Generally, this rule prohibits an agency from commu- 
nicating privately with affected groups.** 

To the extent these rules interfere with negotiated rulemaking, exemp- 
tions should be considered. Exemptions would guarantee negotiations the pri- 
vacy and flexibility needed for success, without sacrificing the concerns these 
rules were designed to protect. The negotiation process itself will supply virtu- 
ally the same safeguards that public meetings provide and, in any event, the 
product of negotiation will be published as a notice of proposed rulemaking so 
that others will have an opportunity to examine any agreements, and partici- 
pate in the rulemaking process before the rule becomes final. 

In the past year, two federal agencies began experimental projects to test 
the effectiveness of negotiated rulemaking. In February of 1983, the Environ- 
mental Protection Agency (EPA) published a notice in the Federal Register 
stating that it would '*use face-to-face negotiations among interested parties in 
place of EPA's usual regulation development process" as a demonstration pro- 
ject for two, as of yet unselected, rules.** EPA explained that its purpose was 

26. 5 U.S.C. § 552(b) (1982). 

27. Id, § 552(3). 

28. Id. app. I § 3(2)(C). 

29. Id. §§ 10(6). (c), 11, 

30. See generally Note, Ex Parte Contacts Under the Constitution and Adminis- 
trative Procedure Act, 80 Colum. L. Rev. 379 (1980). The Administrative Procedure 
Act prescribes procedures for submitting information to federal agencies engaged in 
informal rulemaking. See 5 U.S.C. §§ 551-706 (1982). The APA, however, does not 
explicitly prohibit oral or written submissions outside these formal channels. In 1976, 
Congress amended the APA to prohibit ex parte contacts in formal rulemakings gov- 
erned by 5 U.S.C. §§ 556-557, and conducted under elaborate trial-type conditions. 
Pub. L. No. 94-409, § 4, 90 Stat. 1241, 1246 (current version at 5 U.S.C. § 557(d) 
(1982)). The legislative history of the Act expressly acknowledges that this prohibition 
does not apply to informal rulemaking. S. Rep. No. 354, 94th Cong., 1st Sess. 35 
(1975). reprinted in 1976 U.S. Code Cong. & Ad. News 1241. 1247. 

31. Home Box Office, Inc. v. FCC. 567 F.2d 9, 57 (D.C. Cir.) cert, denied, 434 
U.S. 829 (1977). questioned in. Sierra Club v. Costle. 657 F.2d 298 (D.C. Cir. 1981); 
Action for Children's Television v. FCC. 564 F.2d 458 (D.C. Cir. 1977). 

32. 48 Fed. Reg. 7,494-95 (1983). 



169 

1984] FEDERAL GOVERNMENT 15 

to test the value and utility of regulation by negotiation, determine the type of 
regulations that are most appropriate for negotiated rulemaking, and explore 
procedures that foster effective negotiations." EPA also announced that it 
would hire an outside contractor experienced in the use of third party inter- 
vention techniques to assist in identifying the appropriate parties and in con- 
ducting the negotiations.** The goal of the negotiations will be to develop a 
Notice of Proposed Rulemaking that reflects a consensus among the 
negotiators. 

In May of 1983, the Federal Aviation Administration (FAA) published a 
notice of intent to form a negotiating committee to develop a report concern- 
ing flight time, duty time, and rest requirements for flight crew members." 
For more than thirty years, the FAA*s flight and duty time regulations have 
remained essentially unchanged despite dramatic changes in the equipment 
and operating practices of air carriers. These regulations have been a constant 
source of contention between the carriers and employees, and have been the 
subject of frequent requests for enforcement actions: more than 1 ,000 pages of 
interpretive rulings have been generated on the regulations." Based on its in- 
ability to promulgate mutually acceptable revised regulations through tradi- 
tional rulemaking, the FAA has set up an advisory committee composed of 
persons aff'ected by flight and duty time rules which is currently negotiating to 
reach a consensus on a new rule. 

Encouraged by the potential benefits of negotiated rulemaking. Senator 
Levin" and Representative Pease" have each introduced bills in Congress to 
establish a procedure for the formation of negotiating commissions. Both bills 
call on the Administrative Conference of the United States to form these com- 
missions and to determine appropriate issues and representatives for aff'ected 
interests. 

From these and other experiments, we can determine whether negotiated 
rulemaking provides an eff*ective alternative to traditional adversarial rulemak- 
ing procedures. It clearly off'ers the possibility of enhancing our present system 
of regulation, and agencies should be encouraged to experiment with negoti- 
ated rulemaking as an alternative means for dispute resolution." 



33. Id. at 7,495. 

34. Id, 

35. 48 Fed. Reg. 21,339 (1983). 

36. Id. at 21,340. 

37. S. 1823, 98th Cong., 1st Sess., 129 Cong. Rec. 811,715 (daily ed. Aug. 4, 
1983). 

38. H.R. 996, 98th Cong., 1st Sess., 129 Cong. Rec. H177 (daily ed. Jan. 26, 
1983). 

39. Phillip Harter has cited a number of innovative regulatory procedures which 
could improve the factual bases of rules, reduce formality, and accommodate compet- 
ing interests. Harler, supra note 5, at 24-26. 



170 

16 JOURNAL OF DISPUTE RESOLUTION [Vol. 1984 

B. Alternatives to Litigation 

In addition to using alternative techniques to resolve regulatory disputes, 
the government also can use alternatives to the adversary process to resolve 
more effectively disputes that have reached the stage of litigation. In a sense, 
the government already has devoted much energy to developing alternatives to 
traditional litigation through the establishment of administrative tribunals. 
The administrative review process can provide a speedy and effective alterna- 
tive to litigation because of the unique expertise of Administrative Law Judges 
and the potential informality of the proceedings.*® In modern times the admin- 
istrative process has become increasingly formalized and cumbersome.*** As a 
result, the federal government has for some time been exploring other 
alternatives. 

1. Arbitration 

A number of federal agencies have used or are gearing up to use arbitra- 
tion as a means of resolving disputes. The Department of Justice has been 
participating in an experiment with compulsory pre-trial arbitration.** This 
program, which has been in effect in only a select number of federal districts, 
calls for arbitration of certain cases, where small amounts of money are at 
stake and where the cases turn on factual rather than legal issues. The parties 
are required to go to arbitration, but the arbitrator's decision is not binding. 
The party rejecting the arbitrator's decision is required to pay the costs of 



40. See Jaffe, The Illusion of the Ideal Administration, 86 Harv. L. Rev. 1 183 
(1973). 

41. See note 4 supra. The effectiveness of the adminsitrative process has been 
hampered by the potential for judicial review of administrative decisions. Knowing that 
the courts can be used as a mechanism of delay or to minimize the discretion of ALJs, 
private parties have not always used the administrative process as effectively as possi- 
ble. It has been used by lawyers as an opportunity to build a record to later bring to 
court. Increased resort to judicial review of agency determinations is also due to the 
court's injecting themselves into the administrative process. In the past decades, courts 
began to require agencies to explain the reasons for their actions in greater detail, e.g., 
Portland Cement Ass'n. v. Ruckelshaus 486 F.2d 375, 392 (D.C. Cir. 1973), cert, de- 
nied, 417 U.S. 921 (1974), and to establish that they have taken a hard look at all 
relevant factors. DeLong, Informal Rulemaking and the Integration of Law and Pol- 
icy, 65 Va. L. Rev. 257, 257-72 (1979); see United States Lines v. FMC, 584 F.2d 
519, 533-36 (D.C. Cir. 1978); United States v. Nova Scotia Food Prod. Corp., 568 
F.2d 240, 252-253 (2d Cir. 1977). The court has also tightened the standard of judicial 
review, discarding the "rational basis" test in favor of the "hard look" standard of 
review. Greater Boston Television Corp. v. FCC, 444 F.2d 841 (D.C. Cir. 1970), cert.^ 
denied, 403 U.S. 923 (1971); see DeLong, supra, at 286 ("Prior to about 1970 the 
courts would uphold a rule unless it were demonstrably irrational."). 

42. E. LiND & J. Shapard, Evaluation of Court-Annexed Arbitration in 
Three Federal District Courts (rev. cd. 1983). 



171 

1984] FEDERAL GOVERNMENT 17 

going to trial if the judgment is not substantially better for him than the arbi- 
trator's decision. 

The Department of Labor's Merit System Protection Board is currently 
adopting a new appeals arbitration procedure for resolving matters subject to 
the appellate jurisdiction of the Board.** This appeals procedure will be used 
in four regional offices for approximately one year, and then will be carefully 
evaluated to determine if it should be extended. Under the procedure, the ap- 
pellant may request that his petition be processed under appeals arbitration. If 
granted, the Regional Director appoints an arbitrator from a panel of presid- 
ing officials who are designated for the new procedure.** The award is final, 
but there is a limited right to petition the Board for review.** 

2. Mediation 

Mediation also has been used by a number of agencies as an alternative 
to or prerequisite for litigation. The Environmental Protection Agency was the 
first federal agency to formally provide for mediation.** Under its procedures, 
the Appeals Board, in consultation with the parties, may require mediation to 
resolve a dispute already subject to administrative adjudication. The result of 
the mediation is not binding unless the parties agree otherwise in writing.*' 

A similar process has also been adopted by the Department of Health and 



43. 48 Fed. Reg. 11,399 (1983) (to be codified at 5 C.F.R. § 1201). 

44. Id. 

45. HUD also has experimented with arbitration. The Land Sales Fraud Divi- 
sion, which administers the Interstate Land Sales Fraud Disclosure Act, uses arbitra- 
tion as an alternative to litigation and to fashion consent decrees. The Divison sues land 
developers who have engaged in fraud in selling land developments to the public. The 
Commodities Futures Trading Commission uses an industrial association arbitration 
service to hear complaints by consumers against brokers. The Federal Trade Commis- 
sion uses the Better Business Bureau to arbitrate a large number of consumer com- 
plaints. Finally, the Securities Exchange Commission has assisted stock exchanges in 
setting up their own arbitration service. See generally Simon, US. Tries Alternatives 
to Litigation, Nat'l L.J., June 27, 1983, at 31. 

46. Mosher, EPA, Looking for a Better Way to Settle Rules Disputes, Tries 
Some Mediation, Nat'l J. 504 (1983). Prior to EPA's formal adoption of media- 
tion, the technique had been used by various groups and agencies to resolve environ- 
mental disputes. Environmental mediation won its spurs in 1974, when two mediators 
settled a dispute between the Army Corps of Engineers and local conservationists in- 
volving a flood-control dam on the Snoqualimc River near Seattle. As of this year, 
more than 40 major environmental disputes have been settled through mediation. 
Moreover, in the past three years a number of states have passed laws specifying how 
negotiations and mediation procedures can be used to resolve environmental disputes. 
Id. See generally Susskind, Environment and Mediation and the Accountability Prob- 
lem, 6 Vt. L. Rv. 1 (1981); Sviridoff, Recent Trends in Resolving Interpersonal, Com- 
munity, and Environmental Disputes, Arb. J., Sept. 1980, at 3. 

47. 40 C.F.R. § 123 (1983). 



172 

18 JOURNAL OF DISPUTE RESOLUTION [Vol. 1984 

Human Services (HHS). For a decade, federal agencies administering pro- 
grams of grants-in-aid have used grant appeal boards to adjudicate disputes 
between the granting agencies and their grantees.** The first of these boards 
was established by the Department of Health, Education, and Welfare 
(HEW) in 1973, and the board has been continued under new and revised 
regulations by HHS.** Even before it had a regulation formally authorizing 
mediation of pending grantee appeals, the HEW/HHS appeals board often 
pushed grantees and the agency to the conference table. The Board institution- 
alized this practice in 1979 by routinely informing the parties that the Board 
favored efforts by the parties to resolve disputes by direct discussion.** In Au- 
gust 1981 HHS issued a final rule formally providing for mediation to resolve 
disputes.** Mediation may be instituted under this rule either at the suggestion 
of a party to the pending case or upon the Board's initiative. Once instituted, 
it has been the Board's practice to suspend its proceedings until mediation is 
concluded.*' 

3. Governmental Entities 

Two important governmental entities that have encouraged use of alterna- 
tive dispute resolution processes, and helped resolve disputes through such 
processes, are the Community Relations Service (CRS) and the Federal Medi- 
ation and Conciliation Service (FMCS). 

The CRS, a component of the Department of Justice, is required, under 
Title X of the Civil Rights Act of 1964,*' to provide "assistance to communi- 
ties and persons therein resolving disputes, disagreements, or difficulties relat- 
ing to discriminatory practices based on race, color or national origin, which 
impair the rights of persons in such communities under the Constitution or 
laws of the United States which affect or may affect interstate commerce."** 

CRS conciliators and mediators have attempted to fulfill these objectives 



48. 38 Fed, Reg. 9,906 (1973) (codified at 45 C.F.R. § 16.1 (1973)). 

49. 45 C.F.R. §§ 16.1-16.23 (1983). 

50. Barrett, Mediation and Adjudication: The Double Track Approach, 30 Fed. 
B. News & J. 436 (1983). 

51. 45 C.F.R. § 16.18 (1983). 

52. Mosher, supra note 46. 

53. 42 U.S.C. § 2000(g) (1976). 

54. Id. The CRS function is also addressed in two other statutes. Title II of the 
Civil Rights Act of 1964, which prohibits discrimination in public accommodations on 
the basis of race, color, religion or national origin, provides that a federal court may 
refer a civil action under Title II to CRS "for as long as the court believes there is a 
reasonable possibility of obtaining voluntary compliance." 42 U.S.C. § 2000a-j3d 
(1976). Title VIII of the Civil Rights Act of 1968 requires that the Secretary of HUD 
"cooperate with and render technical and other assistance to the Community Relations 
Service as may be appropriate to further its activities in preventing or eliminating dis- 
criminatory housing practices." 42 U.S.C. § 3608(d) (1976). 



173 

1984] FEDERAL GOVERNMENT 19 

from ten regional offices. The CRS has recently taken a more active role. In 
1982, the agency processed 1,996 alerts to potentially serious racial/ethnic 
conflicts, almost 500 more than in the preceding year." From those alerts, 893 
new cases were opened in which the CRS was called upon to help resolve 
disputes arising from school desegregation, police conduct, and resettlement of 
Cubans, Haitians and other refugees and immigrants.** Through the eff*orts of 
the CRS, we have helped reduce racial harassment and tensions, improve co- 
operation between the police and the minority communities, and avoid need- 
less and time-consuming court litigation. The FMCS has played an important 
role in mediating disputes in the area of labor-management relations. The 
FMCS was created by the Labor Management Relations Act of 1947 for the 
purpose of preventing disruptions in the flow of interstate commerce resulting 
from labor management disputes by providing mediators to assist disputing 
parties in the resolution of their differences.*' The FMCS mediators have no 
law enforcement authority, but rather work with the parties to settle disputes. 
The FMCS has closed approximately 20,000 disputed cases in recent years, 
holding mediation sessions with both labor and management present in about 
half these cases." 

The FMCS is active not only the private sector, but also in the federal 
government. Approximately 60% of federal employees are represented by a 
union and have concluded a collective bargaining contract.** Under Executive 
Order 11,491, which became eff'ective on January 1, 1970, the FMCS provides 
mediation and other assistance in disputes arising from negotiations between 
federal agencies and labor organizations.**^ Title VII of the Civil Service Re- 
form Act of 1978** gave the FMCS statutory authority to carry out this func- 
tion, providing that the FMCS "shall provide services and assistance to agen- 
cies and exclusive representation in the resolution of negotiation impasses."** 

4. Other Alternatives 

The federal government has used a number of innovative, alternative 
techniques to resolve or settle disputes in several difficult cases. One of the 
best known examples occurred in a case in which contractors attempted to 
recover additional compensation because the National Aeronautics and Space 
Administration (NASA) imposed certain technical requirements three years 



55. 1982 Community Rel. Serv. Ann. Rep. 

56. Id. 

57. Labor Management Relations Act of 1947, §§ 202, 203, 61 Stat. 136, 153- 
54, (current version at 29 U.S.C. §§ 172, 173(d) (1976)). 

58. 1981 Fed. Mediation & Conciliation Serv. Ann. Rep. 45. 

59. Id. at 13. 

60. 34 Fed. Reg. 17,605 (1969), reprinted in 5 U.S.C. § 7101 app. at 793 
(1982). 

61. Pub. L. No. 95-454, § 701, 92 Stat. 1111, 1208 (1978). 

62. 5 U.S.C. § 7119(a) (1982). 



174 

20 JOURNAL OF DISPUTE RESOLUTION [Vol. 1984 

after the contracts at issue had been awarded.** Because of the complexity of 
the issues and the anticipated length of discovery and the hearing, the parties 
held a "mini-hearing" to help resolve the dispute. 

In a mini-hearing or mini-trial, both sides agree to present their cases in 
summary form to a panel, which may be composed of senior officials from 
each side or neutral advisors or a combination of the two. At the end of the 
mini-hearing, the panel does not render a decision, but rather comments on 
the strengths and weaknesses of each side's presentation. The parties are then 
in a better position to evaluate both their own and the other side's case, and 
thus to conclude a settlement.** 

Unlike most mini-trials, in the NASA mini-hearing the parties did not 
negotiate a detailed written agreement specifying the procedures to be fol- 
lowed. Rather the parties simply agreed to exchange written briefs on techni- 
cal, cost, and legal issues, and then to have top management, with written 
authority to resolve the technical issues, come together to hear summary 
presentations by counsel. During a one-day mini-hearing, the Director of the 
Goddard Space Flight Center, the NASA Associate Administrator for Track- 
ing and Data Systems, and two senior officials for the contractors heard two- 
and-a-half hour presentations by counsel for each side. No witnesses were 
called. The next day the four persons that heard the arguments met privately, 
and a few days later an agreement was signed resolving the issues. 

The NASA mini-hearing saved more than $1 million in legal fees alone. 
A workable, mutually beneficial solution was developed by involving top man- 
agement that was superior to any decision that could have been imposed by a 
third party.** 

The government also used an innovative dispute resolution technique in 
connection with litigation commenced April 1, 1976, over the value of the 
properties transferred by seven bankrupt railroads to Conrail. While the gov- 
ernment estimated a $500 million valuation, Penn Central, one of the bank- 
rupt railroads, estimated its holding at more than $4 billion. The case would 
have involved a huge expenditure of public resources in litigating the value of 
the property. The parties settled on November 18, 1980 for $2.1 billion.** 

The parties were able to achieve this relatively quick settlement because 
they adopted a "two-team" approach, consisting of a "settlement" team and a 
"litigation" team. Corporate specialists, who were put on the "settlement" 
team, could more easily understand the financial analysis than the litigators. 
In addition, the "settlement" team was better able to maintain the privacy 

63. Johnson, Massi & Oliver, Minitrial Successfully Resolves N AS A-TRW Dis- 
pute, Legal Times Wash., Sept. 6, 1982. at 16. 

64. Business Saves Big Money with the 'Minitrial,' Bus. Week, Oct. 13, 1980, 
at 168. 

65. Id. 

66. Lempert, Complex Cases Demand Lawyers for All Seasons, Legal Times 
Wash., July 27, 1981, at 1. 



175 

1984] FEDERAL GOVERNMENT 21 

needed for disclosure of confidential settlement information." 

II. Alternative Dispute Resolution Processes: Possibilities for the 

Federal Government 

Virtually everyone agrees that alternative dispute resolution processes can 
offer a more speedy and cost-effective means of resolving disputes than tradi- 
tional adversarial processes in some circumstances. While those in both the 
private sector and government find alternative means of dispute resolution at- 
tractive in theory, they have been less willing to adopt these techniques in 
practice in disputes where the government is a party. 

Government resistance to alternative mechanisms for dispute resolution 
stems from a number of different sources. One of the most important causes of 
this resistance is the fact that government lawyers have traditionally been un- 
concerned with the cost of defending and prosecuting disputes in court and in 
administrative proceedings. Perhaps because these costs, though immense in 
absolute terms, are such a relatively small part of the national government's 
budget, the public has not pushed for cost-effective dispute resolution by the 
government. 

Those who manage the government's litigation may also be reluctant to 
use informal dispute resolution processes because of a fear that they will be 
criticized. For certain issues, such as public health and safety, the perception 
remains with some that private, informal hearings are inadequate, and that 
public officials who allow such hearings may be abusing their power. 

Finally, and on the more technical level, government lawyers sometimes 
are reluctant to use alternative means of dispute resolution because it is not 
clear whether Congress has authorized such means. Where Congress has, it 
still may be unclear who in the agency has power to approve their use or how 
an agency pays for the nonjudicial forum. 

The government is in no sense solely to blame for its minimal use of alter- 
native means of dispute resolution. The private sector also has resisted. Al- 
though private parties are willing to accept as final and binding decisions of 
nonjudicial officials in private disputes, the private sector has been considera- 
bly less inclined to accept finality in disputes with the government. Private 
parties have long believed that justice cannot be insured in adversarial pro- 
ceedings with the government unless they have available an endless adminis- 
trative and judicial review process. As a result, our administrative tribunals, 
which could serve as effective alternatives to court litigation, have become 
places to build a record to later bring to court. 

One final constraint on the use of alternative dispute resolution techniques 
is that they require lawyers both inside and outside government to accept new 
attitudes and learn new skills. Litigators, by long training and perhaps by tem- 



67. Id. 



176 

22 JOURNAL OF DISPUTE RESOLUTION [Vol. 1984 

perament, will typically defend tenaciously all points of their client*s position, 
put forth every claim and every argument that can be made on their client's 
behalf, and seek every possible procedural advantage. These skills have a place 
in full-scale litigation, but they are the type of skills that tend to create con- 
flict rather than resolve it. In order for alternative means of dispute resolution 
to become most useful, lawyers must be willing to relinquish secondary claims 
and arguments to achieve their client's objective. They must be willing to dis- 
cuss issues in a spirit of candor, and forego minor tactical advantages to 
achieve a workable consensus. Fortunately, attorneys seem to be quickly 
adopting these new attitudes as they face increasing pressures from clients to 
render legal services in a more cost-effective manner. 

To encourage more eff*ective use of alternative means of dispute resolu- 
tion, a number of steps might be taken. One way to more quickly implement 
alternatives to court litigation in government is to make our administrative 
process more effective. Administrative Law Judges often have unique expertise 
in their area, and the informality of the administrative process can result in 
more speedy and effective resolution of disputes at times, but to improve the 
effectiveness of the administrative process, we must be willing to do such 
things as limit and, in some cases, eliminate judicial review. 

The government could also develop a mechanism to give its lawyers a 
greater incentive to resolve disputes in a cost-effective manner. The federal 
government is only now beginning to monitor its lawyers to ensure that the 
costs of their efforts do not exceed the benefits, and to ensure that they are not 
wasting government money and resources. This type of review process is essen- 
tial to increase the use by government of alternative dispute resolution 
mechanisms. 

Another important step would be to develop a highly effective clearing- 
house to collect, process, and disseminate information on the use of alternative 
means of dispute resolution in government cases. The clearinghouse could en- 
able government attorneys to stay up-to-date on successful and innovative al- 
ternative dispute resolution mechanisms that have been applied by their col- 
leagues, and could provide lawyers with information regarding the most 
effective dispute resolution devices for various types of controversies. It also 
could make known which theoretically promising techniques have proven un- 
productive in practice. The Department of Justice has recently set up such a 
clearinghouse, and plans to implement a training program for line attorneys on 
the use of alternative techniques. The Department also intends to work with 
its client agencies to help them develop their own training programs on alter- 
native means of dispute resolution so that the clients will be aware of these 
options. 

Finally, legislation must be enacted and new rules must be promulgated if 
alternative means of dispute resolution are to become more prevalent. Legisla- 
tion to facilitate the formation of negotiating commissions would allow for a 
comprehensive evaluation of the effectiveness of negotiated rulemaking. In ad- 
dition, legislation must be considered that would more clearly give agencies 



177 
1984] FEDERAL GOVERNMENT 23 

authority to use alternative techniques. In turn, agencies must promulgate reg- 
ulations to give Administrative Law Judges and other government officials ap- 
propriate discretion to request that parties use alternative means of dispute 
resolution. 

Our constant resort to "trial by battle** to resolve both traditional litiga- 
tion and regulatory conflicts has had a number of adverse consequences. Ex- 
cessive court litigation has not only wasted government money, but has also 
resulted in unnecessary antagonism between the public authorities and the 
public itself. Regulatory conflicts between the government and private parties 
have led to ineff*ective regulations and to even more complex, time-consuming 
litigation in our courts. Less adversarial methods must be found and imple- 
mented to avoid needless waste of scarce resources. 

Lord Bacon once observed: 

[He] that will not apply new remedies must expect new evils; for time is the 
greatest innovator; and if time of course alters things to the worse, and wis- 
dom and counsel shall not alter them to the better, what shall be the end?** 

It is clearly time for us to use "wisdom and counsel" to consider reforming our 
system of resolving disputes and to be unafraid to apply "new remedies** to 
achieve these reforms. 



68. The Essays of Francis Bacon 109 (M. Scott ed. 1908). 



I 
I 



179 



2. BACKGROUND ON DISPUTE RESOLUTION MECHANISMS 
A. Mediation 



i 






181 



Reprinted with pernlsslon fro* Judicature , Wolu«e 69, 
No. 5, pp. 263-278, Copyright lT86 




Arbitration vs. mediation — 
explaining the differences 



by John W. Cooley 



This article isadapled from a version thai appeared 
ir> ihe Chicago Bar Record (January-Kebruar>'. 
1985). 

1. Rubins, A Guide for Labor Mediators 6 
(Honolulu: University Press of Hawaii. 197o). 

2. Id. 

i. Elkouri and Elkouri, How Arbitration 
Works 24 (Washington. UC BNA. Srd ed. 197S) 
4. Id. at 25. 



A 



n amazing number of lawyers 
and business professionals are 
unaware of the differences be- 
tween arbitration and media- 
tion. Their confusion is excusable. 

In the early development of the Eng- 
lish language, the two words were used 



interchangeably. The Oxford English 
Dictionary provides as one historical 
definition of arbitration: "to act as for- 
mal arbitrator or umpire, to mediate (in 
a dispute between contending parties)." 
The Statutes of Edward III (1606) refer- 
ring to what today obviously would be 
called a commercial arbitration panel, 
provided: "And two Englishmen, two of 
Lombardie and two of Almaigne shall 
(be) chosen to be mediators of questions 
between sellers and buyers."' 

Modern labor relations statutes tend 
to perpetuate this confusion. As one 
commentator has observed: 

Some statutes, referring to a process as "me- 
diation" describe formal hearings, with wit- 
nesses testifying under oath and transcripts 
made, require reports and recommenda- 
tions for settlement to be made by the neu- 
ual within fixed periods, and either state or 
imply the finality of the "mediator's recom- 
mendations." In one statute the neutral 
third parlies are called, interchangeably, 
mediators, arbitrators and impasse panels.^ 

The Federal Mediation and Concilia- 
tion Service (note the absence of "arbi- 
tration" in its title) performs a basic 
arbitration function by maintaining a 
roster from which the Service can nomi- 
nate arbitrators to the parties and sug- 
gest "certain procedures and guides that 
[the Service believes] will enhance the 
acceptability of arbitration."' 

The National Mediation Board (em- 
phasis added) performs important func- 
tions in the promotion of arbitration 
and the selection of arbitrators for the 
railroad and airline industries.* 

Libraries also assist in perpetuating 
the arbitration mediation definitional 
charade. Search under "mediation" and 
you will invariably be referred to "arbi- 
tration." In the midst of this confusion — 
even among congressional draftsmen — 
it is time to explain the differences 
between the processes. 

The most basic difference between the 
two is that arbitration involves a deci- 
sion by an intervening third party or 
"neutral;" mediation does not. 

Another way to distinguish the two is 
by describing the processes in terms of the 
neutral's mental functions. In arbiuation, 
the neutral employs mostly "left brain" or 
"rational" mental processes— analytical, 
mathematical, logical, technical, adminis- 
trative; in mediation, the neutral employs 
mostly "right brain" or "creative" mental 



263 



182 



processes — conceptual, intuitive, artistic, 
holistic, symbolic, emotional. 

The arbitrator deals largely with the 
objective; the mediator, the subjective. 
The arbitrator is generally a passive 
functionary who determines right or 
wrong; the mediator is generally an 
active functionary who attempts to move 
the parties to reconciliation and agree- 
ment, regardless of who or what is right 
or wrong. 

Because the role of the mediator in- 
volves instinctive reactions, intuition, 
keen interpersonal skills, the ability to 
perceive subtle psychological and be- 
havioral indicators, in addition to logic 
and rational thinking, it is much more 
difficult than the arbitrator's role to per- 
form effectively.' It is fair to say that 
while most mediators can effectively per- 
form the arbitrator's function, the con- 
verse is not necessarily true. 

Besides these differences the two pro- 
cesses are generally employed to resolve 
two different types of disputes. Media- 
tion is used where there is a reasonable 
likelihood that the parties will be able to 
reach an agreement with the assistance 
of a neutral. Usually, mediation is used 
when parties will have an ongoing rela- 
tionship after resolution of the conflict. 
Arbitration, on the other hand, is gener- 
ally appropriate for use when two condi- 
tions exist: there is no reasonable likeli- 
hood of a negotiated settlement; and 
there will not be a continuing relation- 
ship after resolution.* 

If the two processes are to be used in 
sequence, mediation occurs first, and if 
unsuccessful, resort is made to arbitra- 
tion.' Viewed in terms of the judicial 
process, arbitration is comparable to a 
trial and mediation is akin to a judicial 
settlement conference. They are as dif- 
ferent as night and day' The differences 
ran best be understood by discussing 
them in terms of the processes of arbitra- 
tion and mediation. 

The arbitration process 

Arbitration has had a long history in this 
country, going back to procedures car- 
ried over into the Colonies from mercan- 
tile England. George Washington put an 
arbitration clause in his last will and 
testament to resolve disputes among his 
heirs. Abntham Lincoln urged lawyers 
to keep their clients out of court and 
himself arbitrated a boundary dispute 



between two farmers. Today, arbitration 
is being used more broadly for dispute 
settlement both in labor- management 
relations and in commerical uansactions. 

Aside from its well-known use in resolv- 
ing labor disputes, arbiuation is now 
becoming widely used to settle inter- 
company disputes in various indusuies, 
including textile, construction, life and 
casualty insurance, canning, livestock, air 
transport, grain and feed and securities.' 

Simply defined, arbitration is a process 
in which a dispute is submitted to a third 
party or neutral (or sometimes a panel of 
three arbitrators) to hear arguments, re- 
view evidence and render a decision.'" 
Court-annexed arbitration, a relatively 
new development, is a process in which 
judges refer civil suits to arbitrators to 
render prompt, non-binding decisions. If 
a particular decision is not accepted by a 
losing party, a trial de novo may be held 
in the court system. However, adverse 
decisions sometimes lead to further nego- 
tiation and pre-trial settlement." 

The arbiuation process, court-annexed 
or otherwise, normally consists of six 
stages: initiation, preparation, prehear- 
ing conferences, hearing, decisionmak- 
ing, and award. 

Initiation. The initiation stage of arbi- 
uation consists of two sub-stages: initi- 
ating the proceeding, and selecting the 
arbitrator An arbitration proceeding 
may be initiated either by: submission; 
"demand " or "notice;" or, in the case of a 

5. \i one American professional mediator put 
It, the mediator "has no science of navigation, no 
fund inherited from the experience of others. He is a 
sohtary artist recognuing, at most, a few guiding 
stars and dependmg mainly on his personal power 
of divination. " Meyer. Function of the Mediator in 
CoUeclwe Bargaining. 13 Indies. & Lab. Rel Rev. 
159(1960) 

6. In labor relations arbitrations, of course, (on- 
dition (2/ IS normally not present. Laboi disputes 
are generally divided into two categories rights 
disputes and interest disputes. Disputes as lo 

■rights" involve the inicipretation or application 
of existing laws, agreements or customary prac- 
tices, disputes as to "interests" involve controver- 
sies over the formation of collet live agreements or 
efforts to secure them where no such agreemeni is 
vet in existence. Elkouri and Llkouri, supra n 3. ai 
■47. 

7. Because ofethual considerations, thearbitra 
tor and mediator normally arc different persons. It 
should also be noted that mediation is (rec^uenlly 
effective when it is attempted, with the concurrence 
of the parlies, during the course ol an arbitration 
with a neutral other than the arbitratoi serving as 
the mediator Often the unfolding of the opjxments 
evidence during the course ol arbitration leads to a 
better appreciation of the merits ol their respec live 
pcjsitions and hence an atmosphere conducive to 
settlemeni discussions. 

8. rhe stark distinction between mi-diation and 
arbitration was well made by a piofessional media- 
tor who became chairman of the .New York State 



court-annexed proceeding, court rule or 
court order. 

A submission must be signed by both 
parties and is used where there is no pre- 
vious agreement to arbitrate. It often 
names the arbitrator (or method of ap- 
pointment), contains considerable detail 
regarding the arbitrator's authority, the 
procedure to be used at the hearing, 
statement of the matter in dispute, the 
amount of money in controversy, the 
remedy sought and other matters. 

On the other hand, where the descrip- 
tion of a dispute is contained in an 
agreement and the parties have agreed in 
advance to arbitrate it, arbitration may 
be initiated unilaterally by one party 
serving upon the other a written "de- 
mand" or "notice" to arbitrate. 

However, even where an agreement 
contains a "demand" or "notice" arbi- 
tration clause, parties sometimes choose 
also to execute a submission after the 
dispute has materialized. In the court- 
annexed situation, a lawsuit is manda- 
torily referred to an arbitration track and 
the parties must select an arbiuator from 
a court-maintained roster or otherwise 
by mutual agreement. '^ 

Several types of tribunals and methods 
of selecting their membership are avail- 
able to parties who wish to arbitrate. 
Parties may choose between the use of a 
"temporary" or "permanent" arbitrator 
They can also choose to have single or 
multiplearbitrators. Since success of the 



Mediation Board: "Mediation and arbitration... 
have conceptually nothing in common. The one 
[mediation] involves helping people to dec ide for ' 
themselves, the other involves helping people by 
deciding for them." Meyer, iupra n. 5, at 164, as 
c|uoted in Gulliver, Disputes and Negotiations, a 
Cross-cl'Ltural Perspeci ivE. 210(New Yoik: Aca- 
demic Press, 1979) 

9. Cxxiley, Arbitration as an Alternative lo Fed- 
eral Litigation in the Sei'enth Circuit. Report of 
THF Subcommittee on Ai ternativej* to the Pres- 
e.vt Federal Colrt Syste.m, Seventh Circuit Ad 

HocCo.M.MITTtETO StIDV IHeHiCH CoST OF LIT- 
IGATION, 2 Uulv 13. 1978) 

10. Paths to Justice: Major Public Policy Issues 
of Dispute Rewlution. Report of the Ad Hoc 
Panel ON Disputi P..i.soi l'Ticjs and Public Policty, 
Appendix 2 (Washington, D.C.: National Institute 
for Dispute Resolution, October, 1983). 

11 Id. See alio Evaluation of Court-Annexed 
Arbitration in Three Federal DisTRicrr Ohjrts 
(Washington, D.C : Federal Judicial Center, 1981). 

12 Ccx)ley. supra n 9. at 4. Elkouri and Elkouri, 
supra n 3, at 183-86. Domkeon Conimericial Arbi- 
tration. §§14:00-14:05, Rev Ed. 1984). Arbitrators, if 
chosen from a list maintained by an arbitration 
organization oi court-maintained roster, are nor- 
mal Iv compensated at the daily rate fixed hy the 
organization or the court, .\rbitratcjrs selected inde- 
pendently by the (iariies are compensated at the 
daily or hourly rate at which they numially agree. 
In such cases, the pai lies equally share theexf)ense 
of the arbitrator's services. 



264 Judicature Volume 69, Number 5 February-March, 19S6 



183 



arbitration process often hinges on the 
expertise of the tribunal, parties gener- 
ally select a tribunal whose members 
possess imF>arliaIity. integrity, ability and 
experience in the field in which the dis- 
pute arises. Legal training is often help- 
ful but not indispensable. 

Information concerning the qualifica- 
tions of some of the more active arbitra- 
tors is contained in the Directory of Arbi- 
trators, prepared by the Bureau of 
National Affairs, Inc., and in Who's 
Who (of arbitrators) published by Pren- 
tice-Hall, Inc. Also, the Federal Media- 
tion and Conciliation Ser\ice (FMCS), 
the National Mediation Board (NMB) 
and the American Arbitration Associa- 
tion (AAA) provide biographical data on 
arbitrators." 

Preparation. The parties must thor- 
oughly prepare cases for arbitration. 
Obviously, a party must fully under- 
stand its own case to communicate effec- 
tively to the arbitrator. Depending on the 
nature of the case, prehearing discovery 
may be necessary and its pjermissible 
extent is usually determined by the arbi- 
trator. The advantages of simplicity and 
utility of the arbitration mode normally 
weigh against extensive discovery. Dur- 
ing this stage, the parties also enter into 
fact stipulations where possible.'* 

Ordinarily, most or all of the arbitra- 
tor's knowledge and understanding of a 
case is based up)on evidence and argu- 
ments presented at the arbitration hear- 
ing. However, the arbitrator does have 
some "preparation" functions. Generally, 
where no tribunal administrator (such as 
AAA) is involved, the arbiu-ator, after 
accepting the office, designates the time 
and place of the hearing, by mutual agree- 
ment of the parties if possible. The arbitra- 
tor also signs an oath, if required in the 
particular jurisdiction, and determines 
whether the jiarties will have representa- 
tion, legal or otherwise, at the hearing.'* 

Prehearing conferences. Depending on 
the complexity of the matter involved, 
the arbitrator may wish to schedule a 
prehearing conference, which is nor- 
mally administrative in nature.'* Brief- 

IS. Elkouri and Elkouri. supta n. 3. at 24-25. 

14. Elkouri and Elkouri, supra n. 3, at 197: (for 
preparaiion checklist see pp. 198-99); Domke, supra 
n. 12. §§24:01 and 27:01. 

15. Id. 

16. Someol the mailers which might be discusied 
at a prehearing conference are: whether diKOvery is 
needed and, if so, scheduling of same; motions that 
need to be filed and briefed or orally argued; and the 



Arbitration is 

a process 

in which a 

dispute is 

submitted to 

a third party 

to render 

a decision. 



ing schedules, if necessary, are set on 
motions attacking the validity of claims 
or of the proceeding. But generally, brief- 
ing is minimized to preserve the effi- 
ciency of the process. Discussion of the 
underlying merits of claims or defenses 
of the parties are avoided during a pre- 
hearing conference. Ex parte conferen- 
ces between the arbitrator and a party are 
not permitted." 

The hearing. Parties may waive oral 
hearing and have the controversy deter- 
mined on the basis of documents only. 
However, an evidentiary-type hearing in 
the presence of the arbitrator is deemed 
impjerativein \irtually all cases. Since ar- 
bi tration is a private proceeding, the hear- 
ing is not open to the public as a rule but 
all persons having a direct interest in the 
case are ordinarily entitled to attend. 

A formal written record of the hearing 
is not always necessary; use of a rep)orter 
is the exception rather than the general 

setting of firm oral argument and hearing dales. 

17 Ox)lev,jupran.9,at4-5; Elkouri and Elkouri, 
supra n. 3. ai 186-90 

18. Cooley. supra n. 9, at 5. 

19. tlkouri and Elkouri, supra n. S, at 224-25. 

20. (xxjley. supra n. 9. at 5; Elkouri and Elkouri. 
supra n. 3. at 223-28. 

21. Elkouri and Elkouri. supra n. 3, at 225. 

22. Cooley. supra n. 9, at 6. 



practice. A party requiring an interpre- 
ter has the duty to arrange for one. Wit- 
nesses testifying at the hearing may also 
be required to take an oath if required by 
law. if ordered by the arbitrator, or on 
demand of any party." 

Opening statements are made orally by 
each party in a brief, generalized format. 
They are designed to acquaint the arbitra- 
tor with each party's view of what the 
dispute is about and what the party ex- 
pects to prove by the evidence. Sometimes 
an arbitrator requests each party to pro- 
vide a short written opening statement 
and issue statement prior to the hearing. 
Occasionally, a respondent opts for mak- 
ing an opening statement immediately 
prior to presenting initial evidence." 

There is no set order by which parties 
present their cases in arbitration, al- 
though in practice the complaining party 
normally presents evidence first. The par- 
ties may offer any evidence they choose, 
including {personal testimony and affi- 
davits of witnesses. They may be required 
to produce additional evidence the arbi- 
trator deems necessary to determine the 
dispute. The arbitrator, when authorized 
by law, may subpoena witnesses or doc- 
uments upon his or her own initiative or 
by request of a party. The arbitrator also 
decides the relevancy and materiality of 
all evidence offered. Conformity to legal 
rules of evidence is unnecessary. The 
arbitrator has a right to make a physical 
inspection of premises.^" 

The parties make closing arguments, 
usually limited in duration. Occasion- 
ally, the arbitrator requests post hearing 
briefs. When this occurs, the parties usu- 
ally waive oral closing arguments.^' 

Decisionmaking. When the issues are 
not complex, an arbitrator may render 
an immediate decision. However, when 
the evidence presented is voluminous 
and/or time is needed for the membersof 
an arbitration panel to confer, it might 
require several weeks to make a decision. 

The award is the arbitrator's decision. 
It may be given oralis but is normally 
written and signed by the arbitrator(s). 
Awards are normally short, definite, cer- 
tain and final as to all matters under sub- 
mission. Occasionally, they are accom- 
panied by a short well -reasoned opinion. 
The award is usually i.ssued no later than 
30 ditys from the closing date of the hear- 
ing. W^hen a party fails to appear, a 
default award may be entered. ^^ Depend- 



265 



184 



ing on the nature of the award (i.e., bind- 
ing), itmay be judicially enforceable and, 
to some extent, reviewable. The losing 
p>arty in a couri-annexeti arbitration is 
entitled to trial de tioi'O in court. 

The mediation process 

Mediation is a process in which an imp>ar- 
tial intervenor assists the disputants to 
reach a voluntary settlement of their dif- 
ferences through an agreement that de- 
fines their future behavior.-' The process 
generallv consists of eight stages: initia- 
tion, preparation, introduction, problem 
statement, problem clarification, genera- 
tion and evaluation of alternatives, selec- 
tion of altemati\e(s). and agreement.'* 

Initiation. 1 he mediation process may 
be initiated in two principal wavs: par- 
ties submu the matter to a public or pri- 
vate dispute resolution organization or to 
a private neutral; or the dispute is re- 
ferred to mediation by court order or rule 
in a court-annexed mediation program. 

In the first instance, counsel for one of 
the parties or. if unrepreseiued, the party 
mav contact the neutral organization or 
individual and the neutral will contact 
the opposing counsel or party (as the 
case may be) to see if there is interest in 
attempting to mediate the dispute. 

Preparation. ,\s in arbitration, it is of 
paramount importance that the parties 
to a dispute in mediation be as well 
informed as possible on the background 
of the dispute, the claims or defenses and 
the remedies thev seek. The parties 
should seek legal advice if necessary, and 
although a partvs Iaw\er might attenda 
tvpical nonjudii lal mediation, he or she 
normally does not take an adversary role 
but is rather available to render legal 
advice as needed. 

The mediator should also be well- 
informed about the parties and the fea- 
tures of their dispute and know some- 
thing about, 

• the balance of power; 

• the piimary sources of pressure ex- 
erted on the parties; 

• th< pressures motivating them 
toward agreement as well as pressures 
blocking agreement; 

• the economics of the industry or par- 
ticular compunv involved; 

• political and personal conflicts 
within and between the pjarties; 

• the extent of the settlement author- 
itv of each of the parties. 



In mediation, 

an impartial 

intervener 

helps the 

parties reach 

a voluntary 

settlement. 



The mediator sets the date, time and 
place for the hearing at everyone's con- 
venience.'* 

Introduction. In the mediation pro- 
cess, the introductorv stage may be the 
most important." It is in that phase, par- 
ticularly the first joint session, that the 
mediator establishes his or her accepta- 
bility, integrity, cxedibility and neutral- 
itv The mediator usually has several 
objectives to achieve initially They are: 
establish control of the process; deter- 
mine issues and p)ositions of the parties; 
get the agreement-forging process 
started; and encourage continuation of 
direct negotiations,-' 

I'nlike a judge in a settlement confer- 
ence or an arbitrator who wields the 



23 .Salfm. Mfdialton — Thr ConcrpI and thr Pro- 
cess, in iNSTRl CTORS MaNIAL FOR TeaCHIM. C;R1T1- 

CAL Isii'ES 1 1984. unpublished i See grnfralh Sim- 
Itin. Mediation and thf Dynamics or Cxji.ieciive 
Barcai.mnc 23 1 B.\.^. 1 97 1 , Cxiuri-.innoxcil mrviia- 
iion IS a priM-fss in which judgrs rrfenivil i jsrsioa 
nrutral (inediaiur oi master) lor seltlemeni pui- 
poses, Ii also includes in-couri programs in which 
judges perform ihe seitlemeni function lulltimr 

24 See gmrra/Zv Ra\. The .Ittemalnf Dispute 
Hesolution Moi-ement. 8 PtACi and C.ha.soe 117 
(Summer 1982) The pioiess ot mediation and ihe 
roles and strategies o( mediators have been gener- 
ally neglected in studies of negotiation \i one 
author remarked. "Mediation still lemains a poorly 
undeistood proc-ess " Gulluer. supra n. 8 

23. Meagher. "Mediation Puxedures and I'eth- 
niques." 18-19 (unpublished [xijier on lile in the 
Officrof iheGeneralCAJunsel, K.MC.S. Washington. 
D.C 1. Mr. Meagher is a former commissioner of 
FMCS 

26. The suicess ot the introdurton stage is di- 
rw tis related to two critical factors: ( 1 ) the appiupri- 
aie timing of the inediatoi's interseniion. and (2) 



clout of a decision, a mediator does not, 
by virtue of position, ordinarily com- 
mand the parties' immediate trust and 
resp>ect; the mediator earns them through 
a carefully orchestrated and delicately 
executed ritual of rapp>ort-building. 
Every competent mediator has a per- 
sonal style. The content of the media- 
tor's op)ening remarks is generally cru- 
cial to establishing rapp)ort with the 
parties and the respectability of the 
mediator and the process. 

Opening remarks focus on: identify- 
ing the mediator and the parties; explain- 
ing the procedures to be followed (in- 
cluding caucusing), '• describing the 
mediation function (if appropriate) and 
emphasizing the cxantinued decisionmak- 
ing responsibility of the parties; and 
reinforcing the confidentiality and integ- 
rity of the process.*' When appropriate, 
the mediator might invoke the commun- 
ity and public interest in having the dis- 
pute resolved quickly and emphasize the 
interests of the constituents in the suc- 
cessful conclusion of the negotiations.'* 

Finally, the mediator must assess the 
parties' comp>etence to participate in the 
process. If either party has severe emo- 
tional, drinking, drug, or health prob- 
lems, the mediator may p>ostpx)ne the 
proceeding. If the parties are extremely 
hostile and verbally abusive, the media- 
tor must endeavor to calm them, by pre- 
liminary caucusing if necessary." 

Problem statement. Tliere are essen- 
tial Iv two ways to op)en a discussion of 
the dispute by the parties: Both parties 
give their positions and discuss each is- 
sue as it is raised; or all the issues are first 
briefly identified, with detailed exp)osi- 
tion of pxjsitions reser\ed until all the 

the opportunity for mediator preparation. .\ media- 
tor s sense of timing is the ability to judge the psy- 
chological readiness of an individual or group to 
respond in the desired way to a particular idea, 
suggestion or pro(X>sal Meagher, .supra n. 23. at 3, 
see aUo .Maggiolo. Techniqi ES of Mediation i.\ 
Labor DispiTEs62(DobbsKerrv. N^:Oceana Pub- 
luaiions. 1971). The kinds of preparatory inlonna- 
iion needed by the mediatoi are discussed in the text 
supra In many instances, such informaiion is not 
j\ail.)ble prior to intervention and thus ii must be 
deJicaieU eluitetlby themediaior during ihe intro- 
ductory stage. 

27 .Meagher, iupro n. 25, at 26-27 Wall. Media- 
tion, An Analysis, Review and Proposed Research. 
23J CxinflictRes, 157. 161 (1981), 

28. Caucusing is an ex pane conferent e between 
a mediator and a panv. 

29 Meagher, supra ii 25. at 28; Maggiolo, supra 
n Id, at •I2-14 

30 Id. 

SI Ras. supra n 24. at 121: .Maggiolo. supra n. 
26. at 32-34. 



26ti luduature loiumr o*^, Sitmhrr '< Frhruar\-.\larch, I'^fitt 



185 



issues have been identified. The second 
procedure is preferred; the first approach 
often leads to tedious time-consuming 
rambUng about insignificant matters, 
sometimes causing the parties to become 
more entrenched in their positions.'* 

Generally, the complaining p>arty tells 
his or her "story" first. It may be the first 
time that the adverse party has heard the 
full basis for the complaint. The media- 
tor actively and empathically listens, 
taking notes if helpful, using listening 
techniques such as restatement, echo 
and non-verbal responses. Listening is 
the mediator's most important dispute- 
resolving tool." 

The mediator also: 

• asks open-ended and closed-ended 
questions at the appropriate time and in 
a neutral fashion; 

• obtains important "signals" from 
the behavior and body movements of the 
parties; 

• calms a party, as necessary; 

• clarifies the narration by focused 
questions; 

• objectively summarizes the first par- 
ly's story; 

• defuses tensions by omitting dispar- 
aging comments from the summary; 

• determines whether the second party 
understands the first parly's story; 

• thanks the first party for his or her 
contribution. 

The process is repeated with the sec- 
ond party.'* 

Problem clarification. It is in this 
stage that the mediator culls out the true 
underlying issues in the dispute. Often 
the parties to a dispute intentionally 
obfuscate the core issues. The mediator 
pierces this cloud-cover through separ- 
ate caucuses in which he or she asks 
direct, probing questions to elicit infor- 
mation which one party would not dis- 
close in the presence of the other party. 
In a subsequent joint session, the media- 
tor summarizes areas of agreement or 
disagreement, being careful not to dis- 

32. Meagher, supra n. 25, ai 30; Maggiolo, supra 
n. 26. ai 47. 

33. Ray. supra n. 24, at 1 21 ; Salem. supra n 23. at 
4-5; Robins, supran. 1 , at 27; Maggiolo, supra n. 26, 
at 48-49. 

34. Ray, supra n 24. at 121. 

35. Id. at 121-22; Meagher, supra n. 25, at 57-58; 
Robins, supra n. 1 , at 43-44; Maggiolo, supra n . 26, 
ai 49-50. 

36. Maggiolo, supra n. 26, at 12. Other basic 
negotiation principles which some mediators use 
to advantage throughout the mediation process are 
(ound in Fisher and Ury, Getting to Yes, (New 
York: Penguin Books, 1983. Those principles are: ( 1 ) 



The arbitrator's 

function is 

quasi-judicial 

in nature. 



close matters whicn the parties shared 
with the mediator in confidence. They 
are assisted in grouping and prioritizing 
issues and demands." 

Generation and evaluation of alterna- 
tives. In this stage, the mediator employs 
two fundamental principles of effective 
mediation: creating doubt in the minds 
of the parties as to the validity of their 
positions on issues; and suggestingalter- 
native approaches which may faciliute 
agreement.'* These are two functions 
which parties to a dispute are very often 
unable to perform by themselves. To 
tarry out these functions, the mediator 
has the parties separately "brainstorm" 
to produce alternatives or options; dis- 
cusses the workability of each option; 
encourages the parties by noting the 
probability of success, where approp- 
riate; suggests alternatives not raised by 
the parties and then repeats the three 
previous steps." 

Selection of altcmative(s). The media- 
tor may compliment the parties on their 
progress and use humor, when appropri- 
ate, to relieve tensions; assist the parties 
in eliminating the unworkable options; 
and help the parties determine which of 
the remaining workable solutions will 

separate the people from the problem; (2) focus on 
interests, not positions; (3) invent options of mut- 
ual gain; (4) insist on using objective criteria. 

37. Rav.iupran.24.ai 122. Meagher, iupran. 25, 
at 48-49, describes additional techniques of "plant- 
ing seeds." "conditioning," and "influencing ex- 
pecuiions." 

.38. Ray, iupra n. 24. at 122 

39. Id. 

40. Domke. supra n 12. §23.01. at 351-53. 

41. W. §24:05, at 380 

42. Id. 

43. Id. §23:02. at 355. 



produce the optimum results with which 
each can live." 

Agreement. Before the mediation is ter- 
minated, the mediator summarizes and 
clarifies, as necessary, the terms of the 
agreement reached and secures the assent 
of each party to those terms; sets a fol- 
low-up date, if necessary; and congratu- 
lates the parties on their reasonableness. 

The mediator does not usually become 
involved in drafting a settlement agree- 
ment. This task is left to the parties 
themselves or their counsel. The agree- 
ment is the parties', not the mediator's." 

A mediator's patience, flexibility and 
creativity diroughout this entire process 
are necessary keys to a successful reso- 
lution. 

The "neutral's" functions 

To fully appreciate the differences (or 
the similarities) between the two pro- 
cesses, and to evaluate the appropriate 
use of either process, it is instructive to 
focus on considerations which exist at 
their interface — the function and power 
of the "neutral." This is a particularly 
important exercise to acquire a realistic 
expecution of the result to be obtained 
from each process. 

The arbitrator's function is quasi- 
judicial in nature and, because of this, 
an arbitrator is generally exempt from 
civil liability for failure to exercise care 
or skill in performing the arbitral func- 
tion.*" As a quasi-judicial officer, the 
arbitrator is guided by ethical norms in 
the performance of duties. For example, 
an arbitrator must refrain from having 
any private (ex parte) consultations with 
a parly or with an attorney representing 
a party without the consent of the oppos- 
ing party or counsel.*' 

Moreover, unless the parties agree oth- 
erwise, the arbitration proceedings are 
private and arbiuaiors must lake appro- 
priate measures to maintain the confi- 
dentiality of the proceedings." It has 
generally been held that an arbiuator 
may noi testify as to the meaning and 
consunjction of the written award.*' 

In conu-ast, a mediator is not normally 
considered to be quasi-judicial, unless he 
or she is appxainted by the court as, for 
example, a special master. Some courts 
have extended the doctrine of immunity 
to persons termed "quasi-arbitrators" — 
persons empowered by agreement of the 
parlies to resolve disputes arising be- 



267 



186 



A mediator 

has little 

systemic-based 

power. 



tween them." Although the law is far 
from clear on this point, a very persuasive 
argument may be advanced that media- 
tors are generally immune from lawsuits 
relating to the performance of their medi- 
ation duties where the agreement under 
which they p>erform contains a hold- 
harmless provision or its equivalent. 

In absence of such contractual provi- 
sion, it would appear that a functionary 
such as a mediator, selected by parties to 
perform skilled or professional services, 
would not ordinarily be immune from 
charges of negligence but rather is re- 
quired to work with the same skill and 
care exercised by an average person en- 
gaged in the trade or profession in- 
volved.*' 

Of course, weighing heavily against a 
finding of negligence on the part of a 
mediator is the intrinsic nature, if not the 
essence, of the mediation process which 
invests the parties with the complete 
f)ower over their destiny; it also guaran- 
tees any party the right to withdraw from 
the process and even to eject the mediator 
during any pre-agreement stage.** 

Also, in contrast to arbitrators, certain 
ethical restrictions do not apply to medi- 
ators. Mediators are permitted to have ex 
parte conferences with the parties or 
counsel. Indeed, such caucuses, as they 
are called, are the mediator's stock-in- 
trade. Furthermore, while one of the 
principal advantages of a privately-con- 
ducted mediation is the non-public or 
confidential nature of the proceedings, 
and although Rule 408 of the Federal 
Rules of Evidence and public policy 
considerations argue in favor of confi- 
dentiality, the current state of the law 
does not provide a guarantee of such 
confidentiality.*' However, in most cases 



a strong argument can be made that the 
injury from disclosure of a confidential 
settlement proceeding is greater than the 
benefit to be gained by the public from 
nondisclosure.** 

Finally, unlike the arbitrator, the per- 
formance of whose function may be en- 
hanced by knowledge, skill, or ability in a 
p>articular field or industry, the mediator 
need not be an exp)ert in the field which 
encompasses the subject of the dispute. 
Expertise may, in fact, be a handicap, if 
the parties look wrongly to the mediator 
as an advice-giver or adjudicator.*' 

Comparative power 

The arbitrator derives power from many 
sources. The person may be highly re- 
sjaected in a particular field of expertise 
or widely renowned for fairness. But 
aside from these attributes which eman- 
ate from personal talenu or characteris- 
tics, the arbitrator operates within a pro- 
cedural and enforcement framework 
which affords considerable power, at least 
from the f>erspective of the disputants. 
Under certain circumstances, arbitrators 
may fx)ssess broad remedy powers, in- 
cluding the power, though rare, to grant 
injunctive relief.'' They normally have 
subpoena power, and generally they have 
no obligation to anyone, not even "to the 
court to give reasons for an award."" 

In general, a valid arbitration award 
constitutes a full and final adjustment of 
the controversy" It has all the force and 
effect of an adjudication, and effectively 



44 See Craviolini v. Scholer ic Fuller Associated 
Architects, 89 Ariz. 24, 357 P.2d 61 1 (I960), wherean 
architect was deemed to be a "quasi-arbitrator" 
under an agreement with the parties and therefore 
entitled to immunity (rem civil liahilitv in an 
action brought against him by either party in rela- 
tion to the architects dispute-resolving function. 
Compor* Cammell v. Emsi & Ernst, 245 Minn. 249, 
72 N.\V.2d 364 (1955), where certified public ac- 
countants, selected for the specific purpose of mak- 
ing an examination and of auditing the books of a 
corpioration to ascertain iis earnings, were held not 
to have acquired the status of arbitrators so as to 
create immunity for their actions in the perfor- 
mance of such service, simply because the report 
was to be binding upon the parties. 

45. Domke. iupia n. 12, §23:01, at 352-53. 

46. As two professional mediators have poig- 
nantly commented: "L'nlike arbitration and other 
means of adjudication, the parties reuin complete 
control ... If they do not like the mediator, they get 
another one. If they fail to produce results, they may 
end the mediation at any time " Phillips and 
PiaiLa. How to Use Mediation. 10 A. B. A J. OF Sect. 
OF. Lit. 31 (Spring. 1984). 

47. See Grumman Aerospace Corp. v. Titanium 
Metals Corp., 91 F.R.D. 84 (ED N.Y. 1981) (Court 
granted a motion to enforce a subpoena duces 
tecum involving a report prepared by a neutral 
fact-finder on the effects of certain price-fixing 
activities). See generally Restive and Mimgxis.AUer- 



precludes the parties from again litigat- 
ing the same subject." The award can be 
challenged in court only on very narrow 
grounds. In some states the grounds 
relate to partiality of the arbitrator or to 
misconduct in the proceedings, such as 
refusal to allow the production of evi- 
dence or to grant postF>onements, as well 
as to other misbehavior in conducting 
the hearings so as to prejudice the inter- 
ests of a p>arty»* 

A further ground for challenge in 
some states is the failure of the arbitrator 
to observe the limits of authority as fixed 
by the parties' agreement — such as deter- 
mining unsubmitted matters or by not 
dealing definitely and finally with sub- 
mitted issues." In Illinois, as in most 
states, a judgment entered on an arbitra- 
tion award is enforceable "as any other 
judgment."" Thus, from a systemic per- 
spective, the arbitrator is invested with a 
substantial amount of power. 

In striking contrast, with the excep- 
tion of a special master appointed by the 
court or a neuual appointed by some 
governmental body, the mediator has lit- 
tle if any systemic-based power. Most if 
not all of a mediator's power is derived 
from experience, demonstrated skills and 
abilities, and a reputation for successful 
settlements. 

Any particular mediator may wield 
power by adopting a particular role on 
what might be described as a continuum 
representing the range of strengths of 
intervention: from virtual passivity, to 



native Dispute Resolution: Confidential Problem- 
Solving or Every Man's Evidence* Alternatives to 
the High Cost of Litigation. 2 Law fc Bus. Inc./Ctr. 
FOR Public Resourcxs, 5 (May, 1984). Parties can 
assist the preservation of confidentiality of their 
mediation proceedings by reducing to writing any 
expectations or understanding legarding the confi- 
dentiality of the proceedings and by being careful to 
protect against unnecessary disclosure both within 
their respective constituencies and the outside 
world, id. at 9. 

48. See, e.g.. NLRB v. Joseph Macaluso, 618 F2d 
51 (9th Cir. 1980); Pipefitters Local 208 v. Mechani- 
cal Contractors Assn. of Colorado, 90 Lab. Cas. 
(CCH) % 12.647 (D. Colo. 1980). 

49. Phillips and Piazza, supra n. 46, at 33. 

50. In re Ruppert, 29 LA 775. 777 (N.Y. Ct. App. 
1958): In re Griffin, 42 LA 51 1 (N.Y. Sup. Ct. 1964). 
See generally Elkouri and Elkouri, supra n. 3, at 
241-51 

51 Domke, supra n. 12, §29:06. at 436. 

52. Donoghuev. Kohlmeyer&Co.,63Ill. App.Sd 
979, 380 N.E.2d 1003. 20 III. Dec. 794 (1978). 

53. Borg. Inc. v. Moms Middle School Dist. No 
54. 3 111. App. 3d 913, 278 N.E.2d 818 (1972). 

54. Domke, supra n. 12. §33:00, 463. 

55. Id. In Illinois, the court s power to vacate or 
mcxlify arbitration awards is narrowly circum- 
scribed. See III. Rev. Stat. ch. 10, %% 112, 113 
(1981). 

56. III. Rev. Stat, ch 10.1114(1981) 



268 Judicature Volume 69, Number 5 February-March, li 



187 



TkMcl: A compartoon ol 

Arbitration 



Submiuion 
Oanwno tx notice 
Court ruK or ord«r 
S*i»cbo«< of arbitrator 



Di»cov«ry 

Pr»r>«arin8 eonfaraoca 

Motioni 



Arbitrator > oath 

Arbitrator* adminnirativa dotiaa 
Arbitrator Oo«a not taak out inlormation 
about p«ni«a or dispuW 



Admimstrativ* 

Schaduling 

No discuMion ol urxlarlying meriti ol claims or dalarua* 

No ai parra confarancas 



Not genaraliy open to public 

WTinen racord optional 

WiineM«s and partiaa lastify under oath 

Opening aUlamant 

Made orally 

nes also IP wniing 



Complaining party usually presents e 
Arbitrator may suDpoena witnesses 
Evidence rules relaxed 
Arbilralor rules on objections to evidence, 
may reieci evidence 



Oral arguments normally permined tor ciahlication 

and synthesis 
Post-nearing Bnafs sometimes permined 



I may be required 



•.Arard 

Normally m wnting. signed by arbilrator(s) 

Snort detinite cerjin and (mal. as to all matters u'-der 

submission 
Occasionally a snort opinion accompanies award 
Awa^d may be ludicially enforceable or reviewable 



Submiaaion 
Court rule or order 
Aaaignment or aeieciion of r 



Usually no discovery 

Parties obtain background information on ( 

defenses remediea 
Mediator obtains information or panies 

and history ol dispute 
Usually no mediator oain 



Mediator 

Conducts a» parte conferences if necessary, for cair 

Gives opening descriptive remarks 

Develops toist and respect 

Empnasiies importance of successful negotiations 

Helps parties separate tite people from tl\t problem 



Confidential proceeding, no wntten record 

Parties do not speak under oam 

Issues identified 

Issues discussed separately, stones told 

Mediator listens lakes notes 

Mediator asks questions, reads behavioral signals 

Mediator calms parties, summanzes stones defuses 



Mediator determines whether parties understand ston 
Mediator usually has no subpoena power 



Mediator 

Culls out core issues m caucus 

Asks direct probing questions 

Summarizes areas of agreement and disagreement 

Assists parties m grouping and prioritizing issues 

and demands 
Helps panies locus on interests not positions 
6. Gener a tion and evaluation ol aHemathrwa 
Mediator 
Cieales doubts in parties minds as to validity of th< 



Invents options for facilitating agreement 
Leads "brainstorming " discusses workability 
notes probability ol Success of options 

7. Setection ol anemathreia) 
Mediator 

Compliments pai'es on progress 
Assists parties m eliminating unworkable options 
Helps parties to use ot^|ectl^e criteria 
Helps parties derermine which solution win produce 
optimum results 

8. Agreement 

Mediator 

Summarizes and clarities ag-ee-rer-i terms 
Sets foi'ow-jc date f aoproprate 
Congratulates 3ari.es on tneir reasonableness 
Usuai'y does -o' 3ra^ c assist n crafting agreerreni 
Agreement is enlorceaOie as a contract and subiect t< 
modilication oy agreement 



"chairman," to "enunciaior.' to 
"prompter, " to "leader," to %irtual arbi- 
trator.*' The mediator who ran adopt 
different roles on this continuum, chang- 
ing strategies to fit changing circum- 
stances and requirements of both the 

d7. Gullner. supra n. 8, ai 220. 

58 Id at 226 

59. Where a seiilpmeni agreement is redufrd to a 
judgment, (or example, through inicr\ention and 
assistance o( a special master, the 'consent judg- 
ment" IS generally enforceable, if necessary, before 
the court in which the consent judgment is entered 



disputants and himself, is inevitably 
more effective in accumulating and 
wielding power which is real, yet often 
not consciously perceptible by the dis- 
putants themselves.*' 

Since, in the ordinary case, the result of 
the mediation process is an agreement or 
contract not reduced to a court judg- 
ment," the result is binding on the parties 
only to the extent that the law of contracts 
in the partKulai jurisdiction requires. 



And to the same extent, the result is 
enforceable by one party against another. 
As a practical matter, where a party 
breaches an agreement or contract which 
is the product of mediation and the 
agreement is not salvageable, prudence 
would seem to dictate that in most cases 
the underlying dispute— and not the 
breach of agreement — should be liugated. 

Summary 

It is clear that both the functions and the 
levels of power of the arbitrators and 
mediators are dramatically different. 
Counsel must assess the nature of the 
dispute and the personalities of the dis- 
putants prior to determining which pro- 
cess, arbitration or mediation, has the 
best chance to achieve a successful reso- 
lution of the particular conflict. 

For example, arbitration would prob- 
ably prove to be the better dispute resolu- 
tion choice where the dispute involves 
highly technical matters; a long-stand- 
ing feud between the disputants; irra- 
tional and high-strung personalities; and 
no necessity of a continued relationship 
after resolution of the conflict. 

On the other hand, mediation may 
prove to be the most effective choice 
where disputants are stubborn but basi- 
cally sensible; have much to gain from a 
continued relationship with one another; 
and conflict resolution is time-critical. 

Arbitration and mediation are two 
separate and distinct processes having a 
similar overall goal (terminating a dis- 
pute), while using totally different meth- 
ods to obtain dissimilar (decisional vs. 
contrartuab results. These differences 
are best understood by viewing the p^ro- 
tesses side-by-side in Table 1. 

The benefits of arbitration and media- 
tion to litigants, in terms of cost and 
lime savings, are just beginning to l)e 
recognued by law\ers and business pro- 
fessionals alike. It is hop)ed that this dis- 
cussion of the arbitration and mediation 
processes and their differences will help 
lawyers feel more comfortable with these 
two methtxls of dispute resolution and 
to use them to their clients' advantage in 
their joint pursuit of swift, inexjx'nsive, 
simple justice. D 



JOHN W COOLEY IS a former United States 
magistrate He is presently m private practice 
in Evanston. Illinois and serves as a mediator 
arbitrator, and consultant m alternative ais- 
pute resolution 



189 

Reprinted with permission from American Behavioral Scientist. 
Volume 27, No. 2, pp. 255-279, Copyright 1983 ^^^^ 

Three ease studies of mediated negotiation in the public sector are 
summarized. Special attention is given to the roles played by the 
mediators in these cases, the difficulties of ensuring adequate represen- 
tation of all stakeholders, and the problems of protecting the "public 
interest. " Criteria for evaluating mediated negotiation as a supplement to 
traditional legislative, administrative, and judicial means of resolving 
resource allocation disputes are offered. The techniques of labor media- 
tion and mediation in international disputes are compared to see which 
are more appropriate for use in public sector resource allocation disputes. 

Mediated Negotiation* 
in the Public Sector 

Mediator Accountability and the Public Interest Problem 

LAWRENCE SUSSKIND 
CONNIE OZAWA 

Massachusetts Institute of Technology 



Elected officials and administrators in the public sector, confronted 
with increasingly complex choices, must make resource allocation 
decisions thai take into account the competing claims of individuals and 
groups. In the search for more efficient and effective means of handling 
these adjudicatory responsibilities, mediated negotiation is being tried 
more and more frequently. While Americans are quite familiar with the 
way mediation has been used in collective bargaining and labor 
relations, for the most part they are unaware of the extent to which 
mediated negotiation is now being used to resolve family disputes, 
community disputes, environmental disputes, intergovernmental disputes, 
and, more recently, scientific controversies and state budget battles. 

The list of cases in which mediated negotiation has been used to 
supplement traditional administrative, legislative, and judicial decision- 

* The term "mediated negotiation "rather than "mediation "is used in order to emphasize 
the presence of a neutral intervenor and to distinguish mediated negotiation from other 
consensual approaches to dispute resolution that employ the assistance of a third party. 

AMERICAN BEHAVIORAL SCIENTIST, Vol. 27 No. 2, November/ December 1983 255-279 
© 1983 Sage Publications, Inc. 

255 



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256 AMERICAN BEHAVIORAL SCIENTIST 

making is growing steadily (Goldmann, 1980; Talbot, 1983; and 
Susskind et al., forthcoming). Mediated negotiation was used in 
Connecticut to decide on the distribution of federal block grant funds 
for social service programs (Watts, 1983). Several federal agencies, 
including the Environmental Protection Agency, have experimented 
with mediation in the rule-making process (Baldwin, 1983). Mediation 
was used to resolve a crisis in the funding of the state unemployment 
compensation fund in Wisconsin (Bellman and Sachs, 1983), to resolve 
water policy disputes in the Denver area and elsewhere (Kennedy and 
Lansford, 1983; Folk-Williams, 1982), and to handle a variety of 
complicated cases that the federal district court thought might be 
resolved more expeditiously by a court-appointed mediator (Goldberg, 
1983). Dozens of land use and facility-siting disputes have been resolved 
through face-to-face negotiation assisted by a "neutral third party," 
(Susskind, 1981; Bacow and Wheeler, forthcoming). Indeed, several 
states have incorporated mediated negotiation into the process of siting 
hazardous waste treatment facilities (Bacow, 1982). These and other 
instances of mediated negotiation in the public sector go far beyond the 
processing of interpersonal disputes between neighbors (Alper and 
Nichols, 1981), husbands and wives (Haynes, 1981), and the more 
traditional mediation of disputes between labor and management 
(Simkin, 1971). 

Mediated negotiation is attractive because it addresses many of the 
procedural weaknesses of conventional dispute resolution mechanisms; 
that is, it allows for more direct involvement of those most affected by 
decisions than do most administrative and legislative processes; it 
produces results more rapidly and at lower cost than do courts; and it is 
flexible and therefore more adaptable to the specific needs of the parties 
in a given situation. 

Mediated negotiation depends on the assistance of a nonpartisan 
facilitator. In practice, the roles played by mediators vary tremendously 
from situation to situation. At a minimum, the prototype mediator 
arranges meetings, assists in the exchange of information, tenders 
proposals at the request of one party or another, and assists the parties 
in developing clearer statements of their interests. Mediators also can 
propose possible settlements that parties themselves would accept but 
not put forward for fear of appearing "soft." Mediators involved thus 
far in mediated negotiation in the public sector have come from various 
backgrounds and have very different operating styles. Most, however, 
look to collective bargaining (labor mediation) for their cues, although 
this well may be inappropriate, as we will explore further on. 



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Susskind. Ozawa / PUBLIC SECTOR MEDIATION 257 

Public sector disputes are special. They differ from conventional 
two-party private disputes in thai they involve choices with substantial 
spillover effects or externalities that often fall most directly on diffuse, 
inarticulate, and hard-to-represent groups (such as future generations). 
It is our contention that mediators involved in resource allocation 
decisions in the public sector have responsibilities that transcend those 
facing mediators in more traditional situations. While the record thus 
far is impressive, it is important to ask whether mediation is as 
responsive to the broader public interest as are traditional dispute 
resolution and resource allocation mechanisms. The key question is 
whether mediators are as accountable to those most affected by their 
actions as are elected and appointed officials. 

In this article we will (I) review some examples of mediated 
negotiation in the public sector; (2) analyze the process of mediation 
involved in these cases in an effort to draw some general conclusions; (3) 
examine measures of success appropriate to judge the outcome of 
mediated negotiation efforts; (4) analyze the responsibilities of the 
mediator in public sector resource allocation disputes; (5) assess the 
relative usefulness of various mediation models and strategies insofar as 
they apply to public sector mediation; and (6) specify the critical barriers 
to more widespread use of mediated negotiation in the public sector. 



AN INTRODUCTION TO 
MEDIATED NEGOTIATION IN THE PUBLIC SECTOR 

We begin with a review of three cases involving the use of mediated 
negotiation. Each case summary includes a brief chronology of events, 
an analysis of the mediator's role, and an assessment of the outcome of 
the negotiation. 



THE FOOTHILLS CASE 

The Foothills case was sparked by a proposal in the 1970s to 
construct a water treatment facility, dam, and reservoir on the South 
Platte River near Denver, Colorado (Burgess, forthcoming). The U. S. 
Army Corps of Engineers, the Environmental Protection Agency 
(EPA), the Bureau of Land Management, the Denver Water Board, and 
numerous environmental action groups stubbornly debated the merits 



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258 AMERICAN BEHAVIORAL SCIENTIST 

of the proposal, its projected impacts on urban sprawl, air pollution, 
and on Waterton Canyon, a valuable wildlife and recreation area. 

Congressional Representative Pat Schroeder offered to mediate the 
case but was rebuffed by the Denver Water Board, one of the project's 
supporters. When Congressman Tim Wirth, however, a well-known 
environmental advocate who appeared to favor some version of the 
proposed facility, volunteered to serve as mediator, all the parties agreed 
to negotiate. 

Wirth arranged a series of joint meetings with the Corps, EPA, and 
the Denver Water Board. As soon as these three groups agreed to the 
terms of a basic settlement, a coaliton of environmentalists was 
consulted. They objected to only a few points in the proposed 
settlement, and a final agreement was reached with only minor 
alterations. Although construction of the dam constituted a major 
concession on the part of the environmentalists and EPA, the parties felt 
that sufficient compensation and steps to mitigate adverse impacts had 
been promised. 

Congressman Wirth's acceptance as a mediator was particularly 
noteworthy because of his public stand on the issues in dispute. His 
position allowed him to bring both subtle and direct pressure to bear on 
the negotiating parties. He had enough political clout that the federal 
agencies involved felt he might "cause problems for them" if they did not 
make concessions. The local organizations and actors involved believed 
he represented their best interests, although, officially, Wirth was 
accountable only to the voters in his congressional district. From our 
standpoint, he appeared at times to demonstrate little concern for 
interest groups not represented directly at the bargaining table. 

Although the participating parties supported the negotiated settle- 
ment, in retrospect the negotiation process appears flawed. First, 
Wirth's decision to bring local environmental groups into the dialogue 
only after the basic agreement had been drafted by the key governmental 
agencies caused difficulties in implementing the agreement. A discon- 
tented faction of the environmental coalition later contested the 
settlement in court. Second, the reduced capacity of the negotiated 
water facility could cause severe water shortages in the Denver area in 
the future. Ratepayers and future homeowners will be stuck with the 
costs of expanding the water system (probably at a higher price) 
sometime in the future. Their interests were not well represented in the 
negotiation. 

In the eyes of the federal, state, and local agencies involved in the 
Foothills dispute, the mediation effort spearheaded by Wirth appeared 



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Susskind, Ozawa / PUBLIC SECTOR MEDIATION 259 

to preempt some of their powers and duties. The court judge who 
presided over the Foothills case trial objected strenuously to the fact 
that the parties were engaged in an informal negotiation outside the 
courtroom. From the standpoint of the parties involved, however, an 
agreement was reached that exceeded what they thought they might 
achieve in court; or, at least they achieved with certainty results that they 
had only a small chance of gaining in court. 

Mediated negotiation does not, in fact, preempt the statutory powers 
of elected and appointed officials. They can choose whether to 
participate in the negotiations. They can agree whether to be bound by 
the agreements reached. Eventually, they must grant the necessary 
permits, licenses, or permissions under the rules and procedures 
prescribed by law. Mediated negotiation does, however, create a clearly 
stated public consensus that is difficult for elected and appointed 
officials to ignore. 

In the Foothills case, the key agencies and interest groups informally 
reached a negotiated settlement that was later ratified through the 
formal regulatory (permitting) process. No group's legal rights were 
abridged. While there were legitimate stakeholding interests (albeit hard 
to represent), whose interests were probably not well served, the 
mediator used his elected position to force some of the reluctant parties 
to the negotiating table. He did not, however, use his position to ensure 
that all the stakeholding interests were represented (nor did he claim to 
represent the public interest himself). 

BRAYTON POINT CASE 

Acting under authority granted by the Energy Supply and Environ- 
mental Coordination Act (ESECA) of 1974, the Department of Energy 
notified the New England Power Company (NEPCO) that it would be 
required to burn coal instead of oil in three units of its electricity 
generating plant in Somerset, Massachusetts (Smith, forthcoming). 
NEPCO contested EPA's estimates of the cost of conversion and the 
steps required to meet air pollution standards. It appeared that 
prospects for a conversion at the Brayton Point plant that would satisfy 
all affected parties (i.e., NEPCO, federal and state regulatory agencies, 
and energy consumers) were poor. Not only were the relationships 
among the parties uncertain, but the ESECA program itself was new 
and its policies ambiguous. 

In April 1977, the Center for Energy Policy, a nonprofit organization, 
persuaded the principal parties to accept the services of a mediator and 



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260 AMERICAN BEHAVIORAL SCIENTIST 

arranged a meeting attended by officials of NEPCO, DOE, EPA, and 
the Massachusetts Department of Environmental Quality Engineering 
(DEQE) to explore the possibilities for coal conversion. Although 
agreeing to participate in the mediated negotiation process, DOE 
continued to pursue the conversion through formal regulatory channels. 
(The formal conversion process entailed the issuance of a prohibition 
order, the preparation of an EIS, and cooperation with EPA in 
obtaining certification under the State Implementation Plan, as stipulated 
by the Clean Air Act.) Eleven months later, agreement was reached on 
all issues. 

The final agreement allowed for a phased-in conversion plan at 
Brayton Point, set limits on the sulfur content of the coal to be burned, 
and indicated special particulate standards for the facility. 

David O'Connor from the Center for Energy Policy served as 
mediator in the Brayton Point case. He assumed an active role in 
formulating and negotiating the settlement. His activities can be 
grouped under five headings. 

O'Connor served first as an organizer of the negotiations. He sought 
approval of informal ground rules for setting the agenda, raising issues, 
making proposals, dealing with the press, documenting discussions, and 
formulating agreements. He chaired the meetings, kept written records 
of the discussions, and documented points of consensus. 

Second, he served as an information resource. He helped to explain 
technical and legal matters to all the parties, ensuring that their 
understanding of the situation was accurate. 

Third, he acted as a source of encouragement, emphasizing the 
progress being made by the group throughout the negotiations. This 
provided an important psychological boost and helped to sustain the 
momentum of the meetings. 

Fourth, O'Connor played the role of confidential advisor. He held 
private meetings with individual parties to help them clarify their 
understanding of their own interests and allowed them to articulate new 
positions and proposals in a nonthreatening and risk-free environment. 

Finally, through these private interactions, he sought to comprehend 
the groups' priorities and to understand the central technical factors on 
which positions turned. From this standpoint, he was able to develop 
and present composite ideas and options to the groups. 

All participating parties expressed satisfaction with the negotiated 
agreement. DOE, in particular, saw great advantage in gaining voluntary 
conversion. Although the negotiation did not include representatives of 



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Susskind. Ozawa / PUBLIC SECTOR MEDIATION 261 

consumer groups, environmentalists, or other public interest groups, 
additional procedures (i.e., public hearings) required under formal 
regulatory rules were used to supplement the negotiation process in 
order to obtain the concurrence and support of unrepresented parties. 

While an attempt was made to ensure that the concerns of all affected 
groups would be heard and presumably incorporated into the ultimate 
conversion plan, the negotiated agreement could be criticized for 
neglecting to consider the interests of residents living in areas adjoining 
the plant. Moreover, while local residents might be satisfied with the 
phased-in conversion plan, distant portions of the Northeast, susceptible 
to increased sulfate effluents and acid rain, were offered no direct 
involvement in the negotiation. 

In the eyes of the key participants in the Brayton Point case, the 
mediated negotiation effort was a success. The parties achieved a 
voluntary agreement that satisfied all their interests. Not unlike a labor 
mediator, O'Connor measured his success in terms of the satisfaction 
with the final agreement expressed by the parties at the negotiation 
table. While he ensured that all sides based their positions on 
scientifically accurate interpretations of the coal conversion process, he 
did not press the participants to address the broader representation 
issue. One could argue that the state and federal agency officials 
involved in the negotiation had an obligation to represent the interests 
of the broader public and that through the elected officials to whom they 
reported, they were indirectly accountable to the public at large. This 
seems, though, to be a rather weak argument. 



THE CONNECTICUT NEGOTIATED INVESTMENT STRATEGY 

The Connecticut Negotiated Investment Strategy (NIS) was aimed at 
developing a strategy for distributing $33 million of federal aid in the 
form of a Social Services Block Grant (SSBG) received by the state of 
Connecticut for fiscal year 1984. Initiated by the Governor's office, 18 
state agencies^ 1 14 municipalities, and numerous private service agencies 
participated in a mediated negotiation (Watts, 1983). 

Three teams, representing the 18 state agencies, the municipalities, 
and the nonprofit public service providers, convened formally in five 
joint sessions held from October to December 1982. Prior to the 
negotiating sessions, representatives from the teams met to select a 
mediator. Training sessions were held to educate the participants about 



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262 AMERICAN BEHAVIORAL SCIENTIST 

the NIS process and negotiating techniques. Ground rules for the 
negotiations were established by the participants. 

The negotiating sessions involved debating and revising a written 
statement prepared ahead of time by the participants. They addressed 
an agenda of issues determined jointly at the first formal meeting. At the 
fourth full session (held on December 7, 1982), the mediator presented a 
draft agreement he had prepared by incorporating items of agreement 
generated during previous discussions. This helped the group narrow 
the discussion sufficiently to bring the process to a conclusion. A final 
agreement was reached in a specially scheduled session on December 23, 
1982. 

The final agreement outlined a process for distributing the SSBG 
funds and established a Tripartite Commission to monitor the implementa- 
tion of the agreement, resolve outstanding issues, and serve as interpreter 
of the agreement in future disputes. 

Josh Stulberg, a lawyer and trained mediator, was selected by the 
negotiating teams to serve as the mediator. The ground rules established 
by the teams specified a rather passive role for the mediator. His job was 
to facilitate the negotiating process by designating official observers for 
the joint sessions, preparing minutes of all joint sessions, coordinating 
meeting schedules, developing agendas, controlling the pace of the 
bargaining sessions, and assisting the teams in writing formal statements. 
Stulberg made little effort to rectify rather obvious power imbalances 
among the teams. Stulberg, furthermore, made no attempt to clarify 
technical issues, although the state agencies' representatives apparently 
had a much more thorough grasp than others of the complicated 
financial maneuverings that were being proposed. 

The document produced through the NIS process and ultimately 
approved by the governor and the state legislature has been described as 
"a summary statement of all the teams' positions rather than a 
collaborative effort to maximize joint gains" (Watts, 1983: 39). The 
agreement was lacking, it seems, in several important respects: (1) The 
language of the agreement was ambiguous in numerous places, por- 
tending disputes involving interpretation of the document in the future. 
(2) Incentives and mechanisms to ensure compliance with the agreement 
were specifically neglected. (3) No timetable for implementation of the 
agreement was specified. (4) The mediator was not assigned (and did not 
independently assume) any responsibility for the monitoring of the final 
agreement. 

The Connecticut SSBG allocation for FY 1984 represented a 
substantial reduction in the level of federal aid available to address 



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Susskmd, Ozawa / PUBLIC SECTOR MEDIATION 26? 

crucial human service needs. The allocation criteria and plan developed 
through the NIS process clearly will affect the entire population of the 
state since it stipulates how some of the state's own revenues will be 
spent to match the federal allocation. Should decisions like these be 
made through an informal negotiation process? While the governor and 
the legislature had to approve the NIS proposal, to fail to do so after 
such an elaborate effort produced consensus would have thrown the 
entire budgetary process into turmoil. 

A few key interest groups were not involved directly in the 
Connecticut negotiations, most notably certain human service consumers. 
Conceivably, the state agency administrators or local elected officials on 
the teams could have claimed to represent these groups, but they did not. 
The mediator in this case made no special effort to take account of the 
externalities, or the spillover effects, of the agreements reached. He did 
not raise the issue of representation with the teams once they had been 
selected. He made little or no effort to respond to obvious imbalances in 
the technical sophistication of the teams. In short, he behaved in a 
manner quite consistent with the traditional role of a labor mediator. He 
assumed a rather passive posture, let the parties at the table make the 
agreement their own, stayed out of the substance of the debate, and took 
no positions. 



MEASURING SUCCESS 



Any evaluation of a dispute resolution effort must consider the 
fairness efficiency, and stability of the outcome as well as the process. 
Moreover, an assessment of any method of dispute resolution would be 
incomplete without a comparison of the outcome to other possible 
outcomes likely to result from other available methods. 

At least six criteria have been suggested by which to judge the success 
of mediation efforts in the public sector: 

(1) The negotiated agreement should be readily acceptable to the 
parties involved. 

(2) The resuhs must appear fair to the community. 

(3) The results should maximize joint gains (as judged by a disin- 
terested observer). 

(4) The results should take past precedents into consideration. 



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264 AMERICAN BEHAVIORAL SCIENTIST 

(5) An agreement should be reached with a minimal expenditure of 
time and money. 

(6) The process should improve rather than aggravate the relation- 
ships between or among the disputing parties (Fisher, 1979). 

In the Foothills case, while the agreement was acceptable to the 
parties directly involved, some groups affected but not involved directly 
in the negotiation were not pleased with either the outcome or the 
process. While the results appeared fair to the community at large at the 
time of the agreement, there is some question as to whether or not the 
consensus will hold as economic and ecological conditions change. The 
agreement took a great deal of time to hammer out, but the expenses 
were less than what it probably would have cost to pursue all the legal 
opportunities to appeal. Communications among the parties were 
improved somewhat — they learned how to talk to each other — but it is 
not clear whether underlying relationships improved at all. With regard 
to precedents, there were few to take into account. Whether or not joint 
gains were maximized is a matter of some dispute — some observers felt 
that the environmentalists gave away too much. 

In the Brayton Point case, the agreement was acceptable to the key 
parties involved, although, again, some groups obviously affected had 
only the most indirect opportunity to shape the terms of agreement. No 
special attempt was made to publicize the terms of the settlement so it is 
hard to judge whether the results were deemed fair in the eyes of the 
community at large. The agreement was readily acceptable to the parties 
at the table. The way they dealt with their differences certainly improved 
relationships among the key actors. It is doubtful, though, that a 
precedent was estaWished, since so many situational factors were crucial 
and probably will never occur that way again. Most observers feel that 
the agreement did maximize the possible joint gains to the parties at the 
table, but clearly some interests were not attended to in the negotiations. 

The Connecticut NIS agreement was acceptable to the parties 
directly involved, although some concern was expressed by members of 
the Hispanic community who felt they were not adequately represented. 
Relationships otherwise were definitely improved. The time and money 
spent were, in total, probably more than what would have been 
consumed if the state agencies only were involved. However, a unilateral 
decision by the state probably would have created substantial political 
backlash and subsequent instability that would need to be calculated 
into the net costs. Some observers feel the NIS negotiators in 



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Susskind.Ozawa PUBLIC SECTOR MEDIATION 265 

Connecticut sidestepped some of the toughest allocation decisions by 
turning responsibility for detailed decisions over to the new Tripartite 
Committee. 

If the mediated negotiation process undertaken in the three cases 
described here were compared with the typical administrative, judicial, 
or legislative processes used to resolve such conflicts (or competing 
claims), we would likely find that the outcome and the process of 
mediation appeared fairer and more efficient to most of the parties 
involved and produced more stable agreements. It is hard, though, to 
generate convincing comparative data without artificially created 
experiments. Moreover, it is important to point out that mediated 
negotiation is typically a supplement to rather than a replacement for 
the more traditional mechanisms for resolving resource allocation 
disputes. In this sense, an "either-or" comparison is not really appro- 
priate. 

In our American representative democracy, citizens are given the 
opportunity to affect the decisions of legislative bodies through 
lobbying and voting. Given the general level of (in)accessibility of most 
levels of government, lobbying is commonly an option reserved only for 
the most highly organized and (financially) resourceful groups. 

The vote is the most dominant instrument by which individuals may 
register their concerns; however, it is inadequate in three significant 
ways. First, our system of "majority rule" in most instances allows little 
accommodation of minority views, even though the "minority" might 
comprise a sizable 49% of the enfranchised population. Second, public 
resource allocation disputes often involve concerns that are not 
reducible to a yes-or-no decision. Or, in referenda, an individual might 
wish to vote yes if certain future circumstances become true, and no 
otherwise. The vote precludes conditional decision-making. Elections 
limit the expression of opinion by forcing voters to cast their ballots for 
candidates who usually represent "packages" of positions on various 
issues. Again, the ultimate outcome of initiatives, referenda, and 
elections is unlikely to refiect the true wishes of the voting community on 
any particular public resource allocation dispute. Lastly, the chances of 
attaining pareto-optimal decisions are usually forfeited by the rigid 
yes-or-no structure of the ballot. Trades that might maximize joint gains 
are precluded. 

Opportunities for concerned and affected parties to express their 
views on the judgments made by administrative agencies usually take 
the form of ad hoc participation in issue-specific public hearings, citizen 



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266 AMERICAN BEHAVIORAL SCIENTIST 

advisory boards, and public opinion polls and surveys. These methods, 
too, are limited and fall short of the benefits of direct participation in 
mediated negotiation. 

The outcome of disputes resolved administratively may not 
appear fair to the community since public input is seldom binding. 
Decisions are usually made behind closed doors and certain groups 
often feel frustrated about their inability to influence them. The long 
queue of legal suits before the courts provides an indication of the lack 
of success of most administrative dispute resolution efforts. 

The judicial process is perhaps the most visible means of dispute 
resolution. It is not only a means of decision-making, but it is also a 
device for contesting resource allocation decisions made by legislative 
and administrative bodies. The adversarial character of legal proceedings, 
however, discourages joint problem solving and short circuits the search 
for mutual gain. Typically, the issue is whether a given administrative 
decision is legal, not whether it is wise. Judicial dispute resolution rarely 
leaves the disputants with a better working relationship than they had 
before the conflict erupted. 

While mediated negotiation may raise serious questions about the 
acountability of mediators and the representation of all groups, when 
compared to traditional means of dispute resolution mediated negotiation 
—as a supplement to conventional legislative, administrative, and 
judicial processes — is quite appealing. 



ROLE AND RESPONSIBILITY OF 

THE MEDIATOR IN PUBLIC RESOURCE 

ALLOCATION DISPUTES 

Public resource allocation disputes invariably involve the interests of 
parties not easily represented, as in the case of natural resource 
management decisions affecting future generations. Consideration of 
the interests of all affected parties, however, often is crucial for the 
successful implementation and stability of agreements. How can 
mediation in the public sector be structured to take account of 
externalities and to ensure appropriate representation of all interested 
parties? 



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Susskind, Ozawa / PUBLIC SECTOR MEDIATION 267 

In labor mediation, negotiating parties are expected to act in their 
own best interest. While the parties directly involved in public resource 
allocation disputes rarely consider the interests of unrepresented 
stakeholders voluntarily, especially if doing so would impinge on their 
own interests, a mediator might encourage active consideration of hard- 
to-represent interests. Such prodding might take the form of question- 
asking. For example, the various proposals on other named (but 
nonparticipating) groups. In other words, the mediator might pur- 
posefully shape the mediation process in an effort to influence the 
outcome. This would help assure that mediated settlements serve 
unrepresented interests to the greatest extent possible. 

How might mediators achieve such a result without jeopardizing 
their neutrality in the eyes of the parties actively involved, and without 
asserting personal power that nonelected individuals are not expected to 
have? 

One step might be to imagine a credo for mediators to which all those 
practicing in the public sectors would subscribe. Such a credo should 
include normative statements regarding the ethics of intervention in 
public sector conflicts, as well as the following: 

(1) Guidelines for defining stakeholding interests in ad hoc dispute 
resolution and methods of identifying their legitimate spokes- 
persons. 

(2) A list of the objectives of ad hoc negotiation and standards for the 
conduct of negotiation. 

(3) A description of mechanisms for ensuring the protection of 
interests not present at the bargaining table and not directly 
involved in negotiation. 

(4) Prescriptions about the terms of final agreement and the monitor- 
ing and implementation of such agreements [Center for Envi- 
ronmental Problem Solving, 1982: 56-61]. 

We would urge that all potential stakeholding interests be informed 
that a mediation process is to occur and be given advice on how they can 
participate. Second, all stakeholding interests should be told how 
representatives will be selected, and again, how they might become 
involved. Third, those unable to represent themselves ought to be given 



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268 AMERICAN BEHAVIORAL SCIENTIST 

the assistance necessary to present their views effectively. Fourth, 
private stakeholder representatives, who should be selected by those they 
represent, should be required to state clearly the extent to which they are 
authorized to speak on behalf of their constituents. Finally, all 
stakeholding interests, whether represented directly in the negotiations 
process or not, should be provided the opportunity to express their 
views on issues under consideration (through a public hearing, at special 
meetings of the negotiating parties, etc.). 

We would further urge that the objectives of each mediated 
negotiation be stated explicitly and approved by the participating 
parties. Ground rules should be adopted by consensus to guide the 
pacing of the negotiation (with attention to time for thoughtful 
reflection and consultation with constituents), confidentiality, and 
communications with the public. 

Procedures should be integrated into the negotiation process to ensure 
the protection of those interests not represented at the bargaining table 
but likely to be affected by the ultimate settlement. The responsibility 
for "second guessing" what views such interests might express in the 
negotiation should not rest with the mediator; rather, the mediator 
should be prepared to question the negotiating parties as to how they 
perceive the welfare of those unrepresented will be affected by proposed 
agreements. If the mediator believes that the interests of stakeholders 
not present at the negotiation would be adversely affected, he or she 
ought to point this out. Responsibility for such action derives from the 
mediator's obligation to help the parties develop a stable agreement, 
since disgruntled parties might seek to block implementation of the 
negotiated agreement. In a similar vein, agreements should not be 
finalized until all the steps necessary to ensure implementation have 
been clarified. This might require public review and comment on the 
proposed agreement, or consultation with administrative bodies with 
relevant jurisdiction. Ideally, mediated negotiation should be conducted 
so as to leave the disputing parties in the best possible working 
relationship in the future. 

In our view, the language of agreements should meet certain 
minimum standards. First, agreements should be comprehensible to the 
lay public. Details such as contingencies, linkages to formal decisions by 
bodies with pertinent authority, and remediation procedures should be 
stated explicitly. All the negotiating parties should carefully review the 



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Susskind, Ozawa / PUBLIC SECTOR MEDIATION 269 

terms of agreement to ensure that joint gains have been maximized and 
that the agreement is grounded on principles that they will be prepared 
to endorse in the future. 

Finally, from our standpoint, the roles and responsibilities of each of 
the participating parties— and the mediator— with respect to implementa- 
tion and monitoring of the agreement should be specified in the written 
document. 

The mediator should be required at the outset of the negotiation to 
outline in writing how he or she will ensure consideration of the points 
mentioned above. Such a procedure might protect the mediator from 
subsequent charges of bias, prevent the incidence of a "mediator with a 
mission" from subverting the negotiations, and ensure the integrity and 
credibility of the mediation process in the eyes of the public-at-large. 

It has been suggested by a number of observers that the impartiality 
of the mediator is one of the prominent and critical conditions that 
makes mediation attractive to disputants in the first place. Although the 
mediator is expected to maintain an interest in the mcdisiUon process, it 
has been argued that he or she must be neutral with regard to outcome. 
Based on the labor mediation model, mediators assume the roles of 
catalyst, educator, translator, seeker of additional resources, bearer of 
bad news, agent of reality, and scapegoat (Stulberg, 1980). Our 
proposal, that mediators might not be neutral with regard to the 
adequacy of representation, has been attacked as heresy in the 
mediation field (McCrory, 1980). 

While it may be necessary for mediators to be perceived as 
nonpartisan, the claim of neutrality, in our view, is misleading. 
Mediators are rarely disinterested in the outcome of their efforts. Every 
mediator has a motive for engaging in dispute resolution. Whether that 
motive is primarily money, fame, or public service, mediators have an 
interest in bringing parties not only to an agreement, but to an 
agreement that satisfies the disputants and "sits well" with their peers. 

The growing popularity of alternative methods of dispute resolution 
(mediation, arbitration, etc.) has created an increasing willingness to 
experiment with mediation in public sector disputes. Because of the 
substantial and long-lasting impacts that public sector resource allocation 
decisions can have on the public welfare, those who play mediating roles 
in public sector disputes ought to reflect on the special responsibilities 
that face them. 



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SEARCHING FOR AN APPROPRIATE 
MODEL OF PRACTICE 

THE LABOR MODEL AND ITS SHORTCOMINGS 

Collective bargaining has provided the model of practice for most 
professionals interested in public sector dispute resolution. In at least 
one type of public dispute, involving environmental impacts, the labor 
model has been found inadequate (Susskind and Weinstein, 1980). 
There are strong indications that in the larger realm of public resource 
allocation disputes, the labor model may prove similarly inappropriate. 

In collective bargaining situations, the mediator is assumed to be 
preoccupied primarily (if not exclusively) with process. In contrast, as 
suggested earlier, it may be preferable for the mediator in environmental 
and other public disputes to assume the additional responsibility of 
attending to certain key qualities of the results of the resolution process 
(i.e., fairness, efficiency, and stability). 

Discrepancies between these two conceptions of the mediator's role 
and responsibilities may be accounted for by differences in the nature 
and context of the disputes and in the relationships among the disputing 
parties. Seven aspects of public sector disputes which call into question 
the applicability -of the labor mediation model to public dispute 
mediation have been identified. 

( 1 ) While the parties in labor disputes are easily identifiable and able 
to select spokespersons to participate in mediation, groups whose 
interests are likely to be affected by public resource allocation 
decisions ofen are not. Fifty years of experience in the labor 
relations field has helped to institutionalize both expectations 
and procedures for representation. Such institutionalization has 
not occurred in the public disputes field. 

(2) While the issues at stake in labor disputes are fairly well defined 
(wages, fringe benefits, working conditions), and the distribution 
of costs and benefits is more or less predictable, in public sector 
disputes the concerns are frequently amorphous and difficult to 
articulate (e.g., the risks involved with the siting of hazardous 
wastes), and the magnitude and distribution of impacts is not well 
understood. 



205 



Susskind, Ozawa / PUBLIC SECTOR MEDIATION 27! 

(3) In collective bargaining, the relationship between the disputing 
parties is on-going, well established, and involves familiar strat- 
egies (strikes, lock-outs, etc.). In public sector disputes, the 
conflict may represent a one-time encounter between adversaries 
who have never negotiated with each other before. 

(4) The parties involved in labor disputes are relatively experienced 
in negotiating techniques. In public sector disputes the experience 
of the parties in negotiation varies tremendously; often some 
parties may be completely new to the give-and-take of negotiation. 

(5) In labor disputes the parties' interests in settling are usually 
symmetrical (they both incur increasing costs the longer the 
dispute remains unresolved). This is not always the case in public 
sector disputes. In land use disputes, for example, 
environmental groups may come out ahead as long as no decision 
is reached. 

(6) Labor mediation usually entails bilateral negotiations; public 
sector disputes commonly involve numerous public agencies and 
several special interest groups. Multilateral disputes (and the 
attendant issues of coalition politics) make public disputes much 
more complicated and unpredictable. 

(7) In collective bargaining, potential "spillover effects" caused by 
excessive demands are minimized by standard references to 
inflation rates, government consumer price indices, and other 
indicators which guide the fairness of the settlement. In public 
sector disputes, similar constraints have not been developed to 
moderate the demands of individual negotiators (Susskind and 
Weinstein, 1980). 

In summary, since the structure, context, and content of collective 
bargaining is well established, a mediator acting only as the guardian of 
the process might well be acceptable. Representation is rarely an issue 
since the parties are readily identifiable and participate directly. There is 
less need for the mediator to serve as educator since the parties are 
usually experienced in negotiation and well informed about the issues. 
The bilateral nature of negotiations between parties accustomed to 
bargaining with one another reduces the pressure on the mediator to 
actively coordinate concessions and counterproposals. Also, the parties' 



206 



272 AMERICAN BEHAVIORAL SCIENTIST 

continuing relationship tends to ensure their compliance with both 
procedural conventions and the terms of negotiated agreements. These 
assumptions, in our view, do not match the circumstances surrounding 
most public sector disputes. 

THE INTERNATIONAL MODEL 

The role of mediators in international disputes contrasts sharply with 
the labor model of mediation. In international mediation, the mediator 
maintains overt control over the proceedings and plays a much more 
active part in the development of the terms of settlement. This, in our 
view, resembles more closely the appropriate role of mediators in public 
sector disputes. 

Zartman and Berman point out that "nothing requires the third party 
itself to be subtle and indirect, except for the general requirements of 
effectiveness" (1982: 78). It is acceptable, according to Zartman and 
Berman, for the mediator to take an active posture. He or she can use 
tactics such as pointing out benefits that will flow from a solution or new 
possibilities for resolving the problem, showing harm that will occur if 
no solution is found, or even taking a more active stance and offering 
inducements for a negotiated outcome or threatening deprivations if 
one or both parties refuse to talk. 

Although Henry Kissinger is generally considered exceptional among 
international mediators, Pruitt explains that Kissinger's intervention in 
the Middle East illustrates a number of traditional mediation strategies 
and techniques (Rubin, 1981). These extend beyond the role of 
"facilitator" or "catalyst." As mediator, Kissinger 

(1) directly controlled all communications between the disputing 
parties; 

(2) actively persuaded the parties to make concessions; 

(3) acted as a scapegoat and deflector of the parties' anger and 
frustration, rather than allowing the parties to express their 
emotions to one another; 

(4) coordinated the exchange of concessions, and, by so doing, 
masked the bargaining strengths of the parties to one another; 



207 



Susskind. Ozawa / PUBLIC SECTOR MEDIATION 273 

(5) made his own proposals for possible resolution; and 

(6) created and maintained the momentum of the talks. 



Moreover, Kissinger's entry into the Israeli-Arab conflict was 
strongly motivated by the interest of the U.S. government. In Dynamics 
of Third Party Intervention, a collection of analyses of Kissinger's 
Middle East efforts, Rubin notes that "several contributors conclude 
that Kissinger was primarily interested in protecting or enhancing the 
power and reputation of the United States in the Middle East, 
particularly in relation to the perceived interests and objectives of the 
Soviet Union." (1981: 274). Kissinger's interest in bringing the two 
parties to a settlement was apparently strong enough to warrant 
exorbitant promises of U.S. military and economic assistance aimed at 
inducing the parties to make concessions. 

How can a mediator have an agenda of his or her own and still retain 
the trust of the parties? Both Fisher and Zartman have commented on 
this issue. Zartman (1983) suggests that mediators are not indifferent to 
the prospect of reaching agreement, or to the principles that are 
referenced in choosing among alternative solutions, or to the ways they 
are perceived by the parties before, during, and after a dispute. He also 
suggests that mediators typically exert leverage by taking advantage of 
the parties' relative eagerness for a settlement, suggesting possible side 
payments, and allowing the parties to "be soft, but act tough" (by 
transmitting concessionary offers privately while the parties continue to 
posture in public). Such active involvement in negotiations suggests that 
mediators are far from neutral, although Zartman does emphasize that 
mediators manipulate the parties only with their tacit permission. Fisher 
(this issue) suggests that mediators can exert influence in the same way 
any party can, by taking advantage of (1) the power of skill and 
knowledge, (2) the power of a good relationship, (3) the power of a good 
alternative to negotiating, (4) the power of a good option, (5) the power 
of legitimacy, and (6) the power of commitment. Mediators can and do 
exert influence. If mediators of international disputes can play such an 
active role and still retain the confidence of all the parties, why should 
mediators in public sector disputes adopt the more passive style of their 
labor counterparts? 



208 



274 AMERICAN BEHAVIORAL SCIENTIST 

OBSTACLES TO MORE WIDESPREAD USE 

OF MEDIATED NEGOTIATION 

IN THE PUBLIC SECTOR 

There are several obstacles to more widespread use of mediated 
negotiation in the public sector. 

REPRESENTATION 

One of the first hurdles to overcome, as we have noted already, is the 
identification of all the parties likely to hold an interest in the outcome. 
In private disputes, the affected parties identify themselves. In public 
disputes, especially those with spillover effects, the definition of 
legitimate stakeholding interests can itself lead to conflict. 

Assuming the problem of identifying interests can be overcome, the 
next obstacle is to ensure that appropriate spokespersons are selected. 
The lack of organization or structure of certain interests hinders the 
selection process. However, since the effectiveness of a negotiated 
agreement often depends on the ability of representatives to reflect 
accurately and respond effectively to the needs, priorities, values, and 
interests of the groups involved, the selection of spokespersons is 
critical. Difficulty in ensuring that spokespersons have the authority 
they need to commit their constituents may undermine an entire effort. 

Finally, the ad hoc selection of a representative to participate in 
mediated negotiations may provoke opposition from true believers in 
"representative democracy." Our system of government was established 
on the premise of representation by elected officials. Beginning with the 
Interstate Commerce Act of 1887, officials have delegated limited public 
policymaking authority to independent commissions and "New Deal"- 
type agencies. This has not, however, been achieved without criticism 
(Lowi, 1969). Mediated negotiation in the formulation of public policy 
and public resource allocation decisions may suggest to some yet 
another undesirable step away from representative democracy (Haefele, 
1974). 



LINKING INFORMAL NEGOTIATION 
TO FORMAL REGULATORY AND 
ADJUDICATORY MECHANISMS 



209 



Susskind, Ozawa / PUBLIC SECTOR MEDIATION 275 

Elected decision-makers may hesitate to participate in a mediation 
effort. They may feel threatened by a process that forces them to 
surrender even a modicum of their authority. Government agencies may 
be unsure about the propriety of participating in ad hoc negotiation in 
light of their legislative mandates. Reporting on recent U. S. Geological 
Survey (USGS) and Council on Environmental Quality (CEQ) exper- 
iments with environmental mediation, Sachs found that "federal 
officials fear that mediated settlement might be challenged under the 
Administrative Procedures Act" (Sachs, 1982: 97). 

Individuals and action groups participating in informal dispute 
resolution efforts may feel uncertain about the extent to which they 
relinquish their constitutional rights if they agree to participate. They 
may be concerned that statements made during informal negotiations 
will be used against them should negotiations fail and litigation follow. 
Sachs notes that "some attorneys feel the use of collaborative procedures 
in the early stages of a case might weaken their position in later court 
action" (1982: 97). 



INSUFFICIENT INCENTIVES TO 
BRING ALL THE KEY PARTIES 
TO THE BARGAINING TABLE 

A significant hindrance to the more widespread use of mediated 
negotiation in public resource allocation disputes is the lack of sufficient 
incentives to bring all disputing parties, particularly the most powerful, 
to the bargaining table. 

In disputes involving groups with unequal bargaining power, the 
party holding the advantage may not recognize the need for mediation. 
The more powerful group may believe that it can achieve its goals 
without making concessions. Negotiations are unlikely to attract all the 
parties to the bargaining table as long as one or more parties is 
convinced that it can "win it all." 



UNFAMILIARITY WITH MEDIATION 

Another obstacle to more frequent use of mediated negotiation is the 
sheer lack of information about the method and its advantages. Past 
experiments with mediated negotiation in the public sector have not 



210 



276 AMERICAN BEHAVIORAL SCIENTIST 



received much attention in the press, government publications, or in the 
university programs that train administrators, planners, and lawyers. 
The concept of mediation remains tied, in the public's mind, to collective 
bargaining, divorce proceedings, and, more recently, community dis- 
putes (consumer complaints, disputes between neighbors, and other 
small-scale disagreements). 



AVAILABILITY OF TRAINED MEDIATORS 

Even if an administrator or a private citizen involved in a public 
resource allocation dispute wishes to advocate a mediated approach, the 
lack of trained mediators acceptable to all the parties may impede the 
effort. 

Disputants in search of a nonpartisan and qualified mediator are 
often at a loss as how to locate a suitable person. Referral services are 
not yet well established. Thus far, most mediators are volunteers. 
Prominent citizens, respected by all the parties in the dispute or 
identified through an ad hoc network of professionals in the field of 
dispute resolution, may be available. This is not a system that can work 
as the demand grows. 

The payment of mediators is a sensitive matter. The parties to a 
dispute may question the nonpartisanship of a mediator paid by only 
one of the parties. Most of the experiments in public sector mediation 
have been financed by private foundations. These funds are limited. No 
equivalent to the Federal Mediation and Conciliation Service (one 
source of mediators in collective bargaining disputes) exists yet. 
Mechanisms for equitable sharing of the costs of mediation will be 
needed to overcome a critical barrier to the more widespread use of 
mediation in public disputes. 



CONCLUSION 

Some of the obstacles described above may dissolve as the field of 
public dispute resolution matures and existing institutional arrange- 
ments are adapted to accommodate the peculiarities of mediated 



211 



Susskind, Ozawa / PUBLIC SECTOR MEDIATION 277 

negotiation. Other obstacles will give way only to further research and 
experimentation. 

Our objective in this article has not been to advocate the use of 
mediated negotiation in public disputes, but rather to urge its pro- 
ponents to consider seriously whether mediators can be held sufficiently 
accountable to the interests of the public at large. In our view, 
mediators might be sufficiently accountable, but only if (1) they choose 
an appropriately activist model to guide their practice (which in our 
view is definitely not the labor mediation model); (2) they adopt an 
appropriate credo that is known to all potential participants in each 
mediated negotiation effort; (3) they assume measures of success that 
emphasize the quality (but not the particular substance) of agreements; 
and (4) they continue to seek better ways of overcoming the obstacles to 
more widespread use of mediated negotiation in the public sector. 



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278 AMERICAN BEHAVIORAL SCIENTIST 

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215 

Reprinted with pemission fro« Hastings Law Journal > 
Volum« 34, pp. 1231-1244, Copyright 1^83 



The Role of Mediation in Public 
Interest Disputes 



By Barbara Ashley Phillips* 
and Anthony C. Piazza** 



In recent years this country's traditional reliance on the courts to 
resolve disputes has come under serious question.* Although there is 
some evidence that as a society we are no more Utigious than we have 
ever been, the quahty and mix of our Utigation certainly has changed.^ 
Many rights being asserted in litigation today did not exist twenty years 
ago.^ Also, courts have increasingly recognized private rights of action 
for wrongs for which statutory remedies were non-existent or were lim- 

• President of American Iniermediaiion Service, a San Francisco- based organization 
specializing in alternatives to litigation; Co-chair of the Alternatives to Litigation and Legis- 
lation Subcommittee of the ABA Labor Section's Committee on Individual Rights and Re- 
sponsibilities in the Workplace; former Assistant U.S. Attorney and private civil litigator. 
A.B.. 1957, University of California; LL.B., 1961, Yale Law School. 

•• Attorney with Amencan Intermediation Service, specializing in mediation and 
other non-litigaiive alternatives to dispute resolution; former Special Assistant U.S. Attor- 
ney and private civil litigator. B.A., 1971. Boston College; J.D., 1974, New York University. 

1. See, e.g. , Landsman, The Decline of the Adversary System: How the Rhetoric of 
Swift and Certain Justice Has Affected Adjudication in American Courts, 29 Buffalo L. Rev. 
487, 502-03 (1980). 

Professor Leonard L. Riskin attributes the American emphasis on adversarial alterna- 
tives to our national culture, which places a high value on "freedom as an absence of re- 
straint and on autonomy and individual libeny as the highest goal." He contrasts the 
Confucian emphasis on harmony as the natural and desirable condition. Riskin, Mediation 
and Lawyers, 43 Ohio St. L.J. 29, 30 (1982). 

2. See J. Leiberman, The Litigious Society (1981); Cavanaugh & Sarat. Thinking 
About Courts: Toward and Beyond a Jurisprudence of Judicial Competence , 14 Law & Soc'Y 
Rev. 371, 420 (1980); Friedman, The Six Million Dollar Man: Litigation and Rights Con- 
sciousness in Modern America, 39 Md. L. Rev. 661 (1980); Hufstedler, New Blocks for Old 
Pyramids: Reshaping the Judicial System, 44 S. Cal. L. Rev. 901, 907 (1971). These sources 
are cited in an unpublished paper by Marc Galanter, Reading the Landscape of Disputes: 
What We Know and Don't Know (And Think We Know) About Our Alledgedly Contentious 
and Litigious Society, presented at the National Conference on the Lawyer's Changing Role 
in Resolving Disputes, Oct. 1982, at the Harvard Law School (on file with the authors). It is 
worth noting that in California one out of every hundred citizens files a lawsuit each year. 
Lundquist, Humanizing Litigation, Litigation, Spring 1978, at 3, 4. 

3. For example, the right not to be discrimmaied against in employment based on 
race or sex, the extension of the protections of due process to large classes of individuals 
including welfare recipients, prisoners, and the mentally ill, and the requirement of environ- 
mental impact reports, are all relatively recent developments. 

(1231] 



216 



1232 THE HASTINGS LAW JOURNAL [Vol. 34 

ited to administrative enforcement.'* 

The rapid development of public interest law^ in the past two de- 
cades has contributed to the expansion of legally cognizable rights. 
Both through landmark decisions ^ and the skillful use of publicity,"^ 
public interest Utigators have had a profound impact on our society 
and the way we do business. Yet, despite the many dramatic successes 
achieved by pubUc interest litigants in the courts, there are good rea- 
sons to consider alternative approaches for resolving public interest 
disputes. 

The economic motivation propelling other civil litigants toward al- 
ternatives to litigation* is equally apparent in the public interest sector.^ 

4. On the implication of private rights of action under federal statutes, see articles 
collected in Note, Private Rights of Action Under Title IX of the Education Amendments of 
.1972: Cannon v. University of Chicago , 3 Harv. Women's LJ. 141, 142 n.8 (1980). See also 
Ronfeldt, Implying Rights of Action For Minorities and the Poor Through Presumptions of 
Legislative Intent, 34 'Hastings L.J. 969 (1983). 

5. The term "public interest law" first was applied in the mid-I960's lo the work of 
legal groups making efforts to secure legal services for those lacking them. Note, In Defense 
of an Embattled Mode of Advocacy: An Analysis and Justification of Public Interest Practice, 
90 Yale L.J. 1436, 1436 n.3 (1981). See Cooke, Public Interest Law and Lawyers for the 
Public Interest, 34 Rec. A.B. City N.Y. 6, 7 (1979). 

Examples of public interest litigators include the American Civil Liberties Union, 
which emphasizes personal freedoms and assumes that if government is to serve the public 
interest, it must be closely monitored from the outside; the NAACP Legal Defense Fund, 
which uses law strategically to lay the groundwork for political change; the Legal Services 
Corporation, which acts as an independent monitor of government and private activities 
affecting the poor, the Lawyers' Committee for Civil Rights Under Law, which involves 
private lawyers in representing and legitimizing unrepresented interests in constitutional and 
statutory law enforcement; and the public interest law firms, supported by foundations and 
the general public, such as the Environmental Defense Fund, the Public Citizen Litigation 
Group, and Public Advocates, Inc., which address the concerns of environmentalists, con- 
sumers, the elderly, children, women, prisoners, and many other under- represented constitu- 
encies. Council for Public Interest Law, Report: Balancing the Scales of 
Justice: Financing Public Interest Law in America 19-21 (1976); Notcxw/^ra. at 1436 
n.3. 

6. For a list of cases, see Note, supra note 5, at 1437 n.6. 

7. The public education aspect of public interest practice can be a major service in 
itself. Although Mr. Wolinsky and Ms. Arriola, in their accompanymg Commentary, Public 
Interest Practice in Practice: The Law and Reality, 34 Hastings L.J. 1207 (1983), point to 
Committee for Childrens' Television Inc. v. General Foods Corp. , No. 61056 (Cal. Ct. App., 2d 
Dist., Mar. 30, 1982), as a "non-victory," Arriola & Wolinsky, jt//7/-a, at 1221-23, the public- 
ity surrounding that suit and the F.T.C. hearings which followed have gone a long way 
toward educating the public about the nutritional value of sugared breakfast cereals. It is not 
suprising that a major consideration in decisions about the initiation and conduct of public 
interest htigation is the potential impact of publicity about the litigation. Letter from Greg 
Thomas (lawyer for the Committee for Childrens' Television Inc.) to Howard Herman (May 
24, 1983) (on file at the Hastings Law Journal Office). 

8. See, e.g. , the Keynote Address by Chief Justice Warren Burger to the Pound Qo^- 
(QrfinccAgendafor 2000 A.D.—A Need for Systematic Anticipation, 70 F.R.D. 83, 92 (1976). 
More recently, the Rand Corporation has released a study which found that the average cost 



217 
May/July 1983] ROLE OF MEDIATION 1233 

Public interest lawyers know that resources are scarce and that their 
commitment to one battle means that another must be foregone. In a 
time of decreased public funding,'^ survival of public interest lawyer- 
ing may depend upon the availability of cost-effective ahematives to 
litigation." 

Additionally, the substantial delays involved in htigation'^ may 
rob public interest litigants of many of the benefits they turned to litiga- 
tion to achieve.'^ Too often, the remedies available through litigation 
also fall short of complete reUef.^"* 

for processing a tort case through jury trial in federal disinct coun exceeded the average 
award for such cases. Report by Dr. James S. Kakalik and Abby Robyn, "Costs of the Civil 
District Court: Expenditures for Processing Tort Cases," Rand Corp., Santa Monica. Cal., 
Oct. 1982. This is, of course, in addition to the costs and attorneys fees borne by the panies. 
Commenting on a preliminary draft of this study, Chief Justice Burger observed, "If this is 
correct, we need to ask whether it is wise to continue using taxpayers' money in this man- 
ner." h\iT^tr, Arbitration, Not Litigation, Nation's Bus., Aug. 1982, at 52. 

9. See, e.g. , Everett. Financia/ Assistance /or Public Interest Group Participation in En- 
vironmental Decisionmaking , 10 Envtl. L. 483 (1980) (mounting financial pressures on pub- 
lic interest groups in the environmental sector). 

10. Note, supra note 5, at 1437 n.^. 

11. See Green, Marks & Olson, Settling Large Case Litigation: An Alternative Ap- 
proach, 1 1 LoY. L.A.L. Rev. 493 (1978) (cataloguing the expenses of large suits, and offering 
an example of an alternative dispute resolution process succeeding in practice in the kind of 
complex litigation that characterizes many public interest disputes). 

12. By way of example, the Judicial Council of California has noted that the median 
time to decision for civil cases (from the date on which notice of appeal is filed to the filing 
of the Appellate court's decision) ranges from one year to twenty-nine months. Jud. Coun- 
cil OF Cal., 1982 Annual Report to the Governor and the Legislature 62 & Table 
XIV (1982). 

13. Burger, supra note 8, at 53-54. 

14. See, e.g. , Comment, The Limits of Litigation: Public Housing Site Selection and the 
Failure of Injunctive Relief, 122 U. Pa. L. Rev. 1330 (1974). Using the example of suns 
against local housing authorities, this comment suggests the extent to which court victories 
can be nullified by the difficulty of enforcing court-ordered change against a public agency 
defendant with broad discretionary powers. The author observes that, for a variety oi rea- 
sons, including the difficulty of identifying a responsible individual, courts are hesitant to 
exercise their sole real enforcement power — citation for contempt — against public officials. 

Even when the defendants attempt to comply with a court-ordered program, the practi- 
cal problems of implementation and monitoring compliance can be enormous. See, e.g.. 
Note, The IVyatt Case: Implementation of a Judicial Decree Ordering Institutional Change, 
84 Yale L.J. 1338 (1975) (tracking the implementation of a judicial decree ordenng Ala- 
bama's state hospital system to deliver adequate treatment to mentally impaired patients). 

An additional problem with judicial resolution of public interest law suits is that it 
forces the judiciary into a legislative role. See generally Chayes, 77k? Role of the Judge in 
Public Law Litigation , 89 Harv. L. Rev. 1281 (1976). Although Professor Chayes felt that, 
on balance, the judiciary could be entrusted with this expanded role, he noted the very 
senous problems inherent in subjecting both the parties to a suit (and a multitude of non- 
parties) to continual judicial oversight of regulatory policy devised by the court. By con- 
trast, mediated negotiations allow public agencies to maintain their delegated role of ad- 
ministering policies set by the legislature: the agencies simply are given the opportunity to 
perform that role with the advantage of input from the most directly concerned sector of the 



218 
1234 THE HASTINGS LAW JOURNAL (Vol. 34 

This Commentary addresses one alternative to litigation: media- 
tion. '^ First, the mediation process is described. Then its application to 
public interest disputes is explained. Finally, two proposals are ad- 
vanced for incorporating mediation into the process of resolving public 
interest disputes. 

The Mediation Process 

Mediation is facilitated negotiation. Mediators are used by parties 
to a dispute to: 1) depersonalize the dispute, thus reducing the level of 
emotion; 2) enable discussion to take place when the parties are not 
willing to talk directly to one another; 3) permit confidential informa- 
tion to be used to facilitate a settlement without revealing it to the other 
side; 4) clarify issues and identify the interests of the panics; 5) develop 
new options for a mutually satisfactory resolution; and 6) prevent con- 
flict aftermath,*^ 

Mediation is distinct from arbitration, the most familiar alterna- 
tive dispute resolution mechanism. The following chart '"^ illustrates 
some of the similarities and differences between mediation and 
arbitration: 

Mediation Arbitration 

1. Voluntary 1. Voluntary (usually) 

2. Impanial 2. Impartial 

3. Mediator selected by the 3. Arbitrator selected by the 
disputants disputants 

4. Mediator can explore 4. Arbitrator can address 
broad avenues of cause, only those issue-questions 
help identify issues, and which the panies have 
explore alternatives for jointly agreed to submit 
resolution 

5. Disputants rarely submit 5. Disputants can submit 
evidence or have witnesses evidence and have 
since testimony as such witnesses 

holds no weight 



public. See M. Cappelletti & J. Jolowicz, Public Interest Parties and the Role of 
THE Judge in Civil Litigation (1975). 

15. Although this Commentary focuses on mediation, it should be noted that a wide 
variety of alternative dispute resolution procedures have been developed, including neutral 
fact finding, the mini-trial, and a combined mediation-arbitration procedure. See "Alterna- 
tive Methods of Dispute Settlement, A Selected Bibliography," compiled by the Special 
Committee on Alternative Means of Dispute Resolution of the American Bar Association. 
Dec. 1979, and updated May 1982. 

16. Conflict aftermath is the continuation of conflict after the apparent resolution ot a 
dispute. 

17. Reprinted by permission of the American Intermediation Service and William F. 
Lincoln from a manual on negotiation and mediation. 



219 



May/July 1983] ROLE OF MEDIATION 1235 

6. Disputants panicipate in 6. Disputants do not 
developing procedures panicipate in developing 

procedures 

7. Mediator can have private 7. Arbitrator cannot have 
meetings (caucuses) with a private meetings (caucuses) 
disputant with a disputant 

8. Disputants fully participate 8. Disputants do not 

in the decision-making panicipate in the decision- 

process regarding making process regarding 

substantive outcomes substantive outcomes 

9. Mediator has no authority 9. Arbitrator has authority to 
to render a decision render a decision 

10. No decisions, only 10. Decision is ''final and 
settlement agreements binding" 

between the parties 

11. Primarily interested in 11. Determines "right" and 
"mutual gain" resolutions "wrong," or guilt and 

innocence, rectification 

Mediators are "process" experts. To be effective, they need not 
have expertise in the subject of the dispute. Initially, they help the par- 
ties decide what is to be discussed and how the discussions are to take 
place. The parties decide whether, and when, to bring in experts. 

Mediation also offers the parties maximum control over the pro- 
cess of resolving the conflict, an opportunity to redefine the area of 
discussion so that the larger interests can be served, and a collaborative 
framework rarely found in formal proceedings. Even when direct ne- 
gotiations have broken down, mediation can provide a face-saving pro- 
cedure for reestablishing communication among the parties. 

For decades, mediation had proven an effective means of resolving 
complex disputes in the field of organized labor. '^ More recently, me- 
diation has become an important adjunct to litigation in family law 
matters.*^ Parties frequently involved in general civil litigation also are 
beginning to investigate alternatives to adverserial processes, ^o 

To date, state legislation concerning mediation has been limited.-' 
However, the number and scope of mediation programs are increasing 

18. For a discussion of mediation in the collective bargaining context, see W. Simkin, 
Mediation and the Dynamics of Collective Bargaining (1971). 

19. In California, for example, mediation is mandated for child custody matters in di- 
vorce cases. Cal. Civ. Code § 4607 (West. Supp. 1983). A substantial segment of the fam- 
ily law bar nationwide is beginning to utilize collaborative processes, including having the 
same lawyer — or in some cases a lawyer and therapist team — work with the separating 
couple. See generally Am. Bar Ass'n, Alternative Means of Family Dispute Resolu- 
tion (1982); Riskin, Ji//7r<7 note I. 

20. See. e.g. . "Managing" Company Lawsuits to Stay Out of Court, Bus. Wk.. Aug. 23, 
1982. at 59. 

21. For a compilation of slate laws relating to mediation, see State Legislation on 
Dispute Resolution (A.B.A. Special Committee on Alternative Means of Dispute Resolu- 
tion Monograph No. I, June 1982). 



220 



1236 THE HASTINGS LAW JOURNAL (Vol. 34 

dramatically.^2 Xhere is reason to believe that mediation also can con- 
tribute substantially to the resolution of public interest disputes. 

The Value of Mediation in Public Interest Disputes 

Three characteristics of public interest litigation particularly sug- 
gest the value of mediation in public interest disputes: 1) the tendency 
of the parties to take positions based on principle that put the essentials 
of discussion beyond negotiation; 2) the fact that much public interest 
litigation never actually resolves the underlying controversies; and 3) 
the frequent failure of government defendants to identify someone to 
take responsibility for settling disputes. Following the discussion of 

each of these characteristics is a description of how mediation can 
help.23 

Much Public Interest Litigation Is Instituted and Maintained Because the 
Parties Take Positions Based on Principles That Are Beyond 
Negotiation 

Professor Marc Galanter of University of Wisconsin Law School 
has analyzed nonsettling cases to determine the reason for their longev- 
ity. He concludes that these hard-to-settle cases often involve situa- 
tions in which a party needs the judicial declaration itself, rather than 
simply a settlement of the immediate dispute.^'* In some cases a Utigant 
wants to secure a declaration of '*good law.''-^ In others, a premium is 
placed on having an external agency make the decision.^^ Frequently, 
accepting a negotiated resolution is perceived as weakening the future 

, 22. Ronald L. Olson, Chair of the A.B.A. Special Committee on Ahemative Means of 
Dispute Resolution, notes in his foreword to the monograph State Legislation on Dis- 
pute Resolution, jv/>/'^ note 21, that more than 400 private and government agencies are 
currently providing informal dispute resolution services. In addition, 188 communities in 38 
Slates have established "neighborhood justice centers." For a description o( an exemplary 
program of this type, see San Francisco Community Boards, 1981 Annual Report 
(1981) (on file with authors). Mediation also has come to play an important role in the 
juvenile justice field. See E. Vorenburg, A State of the Art Survey of Dispute Reso- 
lution Programs Involving Juveniles (1982). 

23. There are other characteristics of public interest litigation that suggest the potential 
value of mediation. For example, it is the authors' experience that public interest litigants 
often use the threat of litigation to encourage settlement of the underlying issues. Media- 
tion, as a more direct method of bnnging the parties to the negotiating table, would be a 
more efficient use of time and money and would better serve the public interest. 

24. Galanter, supra note 2, at 24-25. 

25. /c/. at 26. Among the "good law" cases, perhaps the most famous is Brown v. 
Board of Educ, 347 U.S. 483 (1954). 

26. Galanter, supra note 2, at 25. For example, a government or corporate employee 
not wanting to take responsibility for a settlement might be very anxious to have a third 
party decide the cause. 



221 



May/July 1983] ROLE OF MEDIATION 1237 

bargaining credibility of a party. ^'^ In other cases a vindication of fun- 
damental values is sought.^^ 

Although such perceptions make settlement more difficult, the fact 
is that parties in general civil litigation frequently change their percep- 
tions of what is and is not negotiable. Almost ninety percent of all civil 
lawsuits eventually settle. ^^ In contrast, perhaps only fifty percent of 
the public interest cases settle. ^^ It is unclear how much of this differ- 
ence in settlement rate is attributable to the inabihty of particular par- 
ties to establish and maintain effective communication and how much 
is attributable to the unique nature of public interest litigation. A look 
at the process of mediated negotiations suggests, however, that its ap- 
phcation to public interest disputes could substantially reduce the need 
for litigation. 

The most important function of any negotiation is to educate the 
panics about their own and opposing interests. This enables them to 
take into account the perspectives and needs of all panics to the dispute 
in considering settlement options. By utilizing an intermediary, this 
educational process may even take place without face-to-face discus- 
sions by the panics. The intermediary permits the panics to explore 
possible resolutions without either pany giving up its litigating stance 
or revealing confidential information to other litigants. 

Sometimes this educational process of settlement talks will induce 
even the most committed believer in principle to substitute a negotiable 
objective for a non-negotiable one which has contributed to impasse. 
For example, a group that in principle opposes the building of nuclear 
power plants might be persuaded to negotiate over the terms and con- 
ditions on which a power plant would be built (or completed) if the 
plant would use only waste fuels already generated by the nation's nu- 
clear weapons program. 

27. Id. Some trial lawyers feel impelled to try the hard cases, to maintain credibility in 
further negotiations. Belli, Pretrial: Aid to the New Advocacy, 43 Cornell L.Q. 34 (1957). 
A frequent defendant such as a utility company may not want to make settlement too easy 
for fear of encouraging further claims. An employer might be reluctant to compromise in a 
dispute with one employee for fear that other employees will demand equal treatment. 

28. Galanter. supra note 2, at 26. The National Rifle Association's eflbrts to strike 
down legislation aimed at gun control is one example. 

29. Id. at 23. 

30. Letter from Sidney M. Wolinsky, co-founder of Public Advocates Inc. (May 19, 
1983) (on file with the authors). 

A lower rate of settlement is also suggested by statistics published by the Aministrative 
Office of the United States Courts. For the 12-month period ending June 30. 1981, 16.8% of 
all civil rights cases (excluding United Slates cases and prisoner petitions) reached trial. 
This is compared to 6.6% for all civil cases generally. Ad. Off. of the U.S. Cts., 1981 
Annual Report at table C4 (1981). The Administrative Ofl!ice does not keep separate 
statistics for public interest litigation other than civil rights cases. Civil rights cases (exclud- 
ing United States cases and prisoner petitions) terminated within the same period also were 
pending an average of one-third longer than civil cases in general. Id. at table C5A. 



222 

1238 THE HASTINGS LAW JOURNAL [Vol. 34 

Much Public Interest Litigation Never Resolves the Underlying Controversy 
and Is Incapable of Doing So 

Litigation, as well as settlement discussions ancillary to an adver- 
sarial process, generally addresses only the legal issues in which the suit 
is framed. Because the parties stand **in the shadow of the law,''^' they 
may never address many of the real interests involved in the dispute. 

Consider, for example, the action filed by Ralph Nader against 
Allegheny Airlines seeking damages for being "bumped" from an 
overbooked flight.^^ Although the publicity generated by the suit ap- 
parently did induce corrective measures by the airline industry and the 
Civil Aeronautics Board,^^ the remedy actually sought by Nader — 
CAB prohibition of overbooking — was not even at issue in the 
litigation.^^ 

Much of the litigation over environmental impact reports also falls 
into this category. Usually, the plaintiffs want either to stop or to force 
modification of a project. The legal issue employed to reach this result 
is a claim that the project's environmental impact report is deficient. In 
Las Raza Unida v. Volpe?^ plaintiffs alleged that a California highway 
project had failed to comply with various federal statutes dealing with 
impact on the environment and housing. After protracted litigation, 
plaintiffs obtained an injunction, which was upheld on appeal,^^ and 
attorneys fees.^^ 

The underlying interest of the plaintiffs in this case was to mini- 
mize destruction of homes and parklands.^^ The interest of the defend- 
ants was in furnishing improved transportation facilities. Were these 
interests so adverse that no plan satisfying all parties could have been 
developed? Or was it the absence of an effective alternative to litiga- 
tion that forced these parties into adversary roles, in a lengthy and 
costly series of court actions paid for by the public? This "successful" 
public interest litigation did force some degree of consideration of the 
conflict between the public interest in housing and recreation on the 
one hand, and in transportation on the other. It did not meet the need 

31. The phrase is taken from Mnookin & Komhauser. Bargaining in the Shadow of the 
Law: The Case of Divorce, 88 Yale L.J. 950, 997 (1979). 

32. Nader v. Allegheny Airlines. 365 F. Supp. 128 (D.D.C. 1973). rev'd d remanded, 
512 F.2d 527 (D.C. Cir. 1975), afTd, 426 X^.'Si. 290 (1976). on remand, 445 F. Supp. 168 
(D.D.C. 1978), rev'd, 626 F.2d 1031 (D.C. Cir. 1980). See Note, Court Usurpation of CAB 
Function: The Problem of the "Bumped" Passenger, 43 UMKC L. Rev. 112 (1974). 

33. B. Weisbrod. Public Interest Law 413 (1978). 

34. N.Y. Times. Oct. 21. 1973. § 4. at 12. col. 1. 

35. 337 F. Supp. 221 (N.D. Cal. 1971). 

36. 488 F.2d 559 (9th Cir. 1973), cert, denied, 409 U.S. 890 (1972). 

37. 57 F.R.D. 94 (N.D. Cal. 1972). 

38. The project, as originally planned, would have dipiaced 5,000 persons and de- 
stroyed a number of parks. Id. at 100. 



223 



May/July 1983] ROLE OF MEDIATION 1239 

to bring all interested panies together to develop options for satisfying 
these conflicting interests.^^ 

Public Interest Disputes May Be Forced to Trial Because the Government 
Defendant Fails to Identify Someone Who Will Take Responsibility 
for Settling the Dispute 

Public Advocates Inc., a public interest law firm with an impres- 
sive record of coun victories, believes that the failure of government 
defendants to find someone who will take responsibility for settling dis- 
putes is one of the most exasperating features of public interest 
practice.'*^ 

In Larry P. v. Riles, ^^ Public Advocates Inc. successfully sued to 
prevent placement of black children in classes for the mentally retarded 
on the basis of discriminatory I.Q. tests. Early in the dispute the State 
Department of Education had grounds to decide that the tests were, in 
fact, of questionable validity ."^^ jhe plaintifis' counsel have told the 
authors that they believe that the inability of the department to find 
someone to take responsibility for settling the dispute forced the case to 
trial. The resuh was that this case, filed in 1971, went on for nearly a 
decade."*^ Had a mediator helped to identify the interested parties and 
to clarify their settlement authority in the early stages of Larry P. , it is 
possible that the judgment and lengthy appeal could have been 
avoided. 

39. A particularly poignant example of the need for effective mediation is furnished by 
Bracco v. Lackner, 462 F. Supp. 436 (N.D. Cal. 1978). In that case plaintiffs sought to 
prevent the abrupt closing of a San Francisco convalescent hospital for failure to comply 
with state standards. Most of the primarily low income patients were on Medi-Cal and were 
to be relocated to several facilities outside of San Francisco. Although the plaintiffs agreed 
that the facility needed to be brought up to code, they wanted to avoid relocation, the resuh- 
ing "transfer shock," and disruption of patient relationships. They brought suit on a due 
process theory and won in district coun. Id. The victory slowed down the closing process, 
but the patients eventually were moved, the facility closed, and the much needed convales- 
cent beds lost. 

Both the state and the patients had a strong interest in maintaining this facility. In fact, 
a bill was subsequently passed by the stale legislature providing for the appointment of a 
receiver in such a situation. In a real sense, both the state and the attorneys for the plaintiffs 
were seeking to car^ for the interests of the same clients. A mediation could have brought 
together all of the interested parties at the begiiming of the dispute, allowing exploration oi a 
vaneiy oi options including receivership before mounting time pressures forced a closure of 
the facility. 

40. See Amola & Wohnsky, supra note 7, at 1225-27. 

41. 495 F. Supp. 926 (N.D. Cal. 1979). 

42. Id. at 931-35. See also Larry P. Riles. 343 F. Supp. 1306 (N.D. Cal. 1972), afd, 
502 F.2d 963 (9th Cir. 1974) (per curiam) (ordering and aflBrming preliminary injunction). 

43. See 495 F. Supp. at 932-34 ("For a period of time it was thought that the Master 
Plan for special education in California, enacted in 1974, would address and perhaps rem- 
edy the problems raised by this case, but that hope never materialized. The case had to be 
brought to trial on the merits."). 



224 
1240 THE HASTINGS LAW JOURNAL (Vol. 34 

The Value of Mediation 

Mediation can solve these problems of public interest litigation. 
The mediation process focuses on each party's underlying interests 
from the beginning, when the issues for discussion are being developed 
and clarified. Mediators can help the panies use their differing needs 
and perspectives as the basis for achieving a mutually acceptable reso- 
lution rather than just seeing these differing interests as reasons to 
disagree. 

Mediation of complex pubhc interest disputes has proven success- 
ful in practice. The Institute for Environmental Mediation in Seattle, 
Washington, has investigated the applicability of mediation in more 
than fifty disputes and has settled a dozen complex lawsuits. One rep- 
resentative case is the Riverside Community Landfill Dispute ^"^ which 
involved a dispute over a proposed replacement site for two existing 
landfills. With the aid of the Institute mediators, the parties realized 
that there could be no negotiated resolution as long as the focus was 
solely on an agreement over the proposed site. They therefore broad- 
ened their discussion to address the basic issue: what to do with the 
garbage. Industry representatives and environmentalists were included 
in the discussions. The result was that the entire group reached an 
agreement on a much broader set of solid waste issues in addition to 
agreeing on a replacement landfill site,"*^ 

As this case shows, failure to pursue collaborative discussions may 
be more costly than losing any particular settlement opportunity.'*^ It is 
a lost opportunity for mutual education, for building consensus which 
will serve important long-term interests, and for resolving differences 
which otherwise cause additional clashes in the future. 

One factor impeding the use of mediation in the public interest 
sector is that many public interest disputants only rarely become in- 
volved in the legal process;"*"^ they are consequently less experienced 
than corporate disputants at developing and implementing preventive 
strategies.^^ Public interest law firms and organizations do engage in 

44. Institute case files are case name- indexed. This case was mediated by Alana 
Kastner. 

45. The Institute for Environmental Mediation, Summary Report to the 
Visiting Committee (May 1982) (on file at Hastings Law Journal Office). 

46. For other examples in the public interest field, see generally Am. Arbitration 
Ass'n, Mediation: A Transferable Process for the Prevention and Resolution of 
Racial Conflict in Public Secondary Schools (1976): Conference Report. "Conflict 
Management: Its Application to Energy Disputes." Engineenng Foundation Conference. 
Rindge, N. H. (Aug. 1979) (on file with authors); Reynolds & Tonry. Professional Mediation 
Services for Prisoners' Complaints. 67 A.B.A. J. 294-97 (1981). 

47. Galanter, Whv the Haves' Come Out Ahead: Speculations on the Limits of Legal 
Change, 9 Law & Soc'y Rev. 95, 98 (1974). 

48. G. Hazard. Ethics in the Practice of Law 141 (1978). 



225 



May/July 1983) ROLE OF MEDIATION 1241 

dispute resolution planning similar to that in the private sector/^ How- 
ever, the planning often centers on selecting targets for litigation. It is 
not preventive planning that encompasses consideration of alternative 
dispute resolution procedures. How then, can alternative dispute reso- 
lution processes such as mediation be incorporated into the process of 
resolving public interest disputes? The present under-utilization of 
mediation comes not so much from a rejection of the collaborative ap- 
proach as from a misunderstanding of the process and from excessive 
and conditioned rehance upon litigation. Also, governments make no 
budgetary allowance for such settlement services.^^ 

Some Modest Proposals 

The following proposals are modest in that they do not require 
major commitments of resources before they can be tested in a variety 
of situations. Indeed, as funding for public interest advocacy becomes 
increasingly scarce,^' the cost-effectiveness of mediation as compared 
to litigation will be more readily appreciated: mediated settlement dis- 
cussion are measured in days, or even in hours, rather than in the years 
required by litigation. 

Nor is complicated new legislation needed at this time. It seems 
wiser to test new mediation programs experimentally before enshrin- 
ing — and thus limiting — them in legislation. Moreover, because the 
mediation process works only with voluntar)' panicipation, there is less 
need for legislative mandate. All that really will be needed is the op- 
portunity to see how mediation can help; the marketplace will decide 
whether it should be incorporated formally into our dispute resolution 
processes, and on what scale. 

Our first proposal is that the courts screen cases for mediated set- 
tlement discussions.^^ In this way, the courts could do much to help 
test the viability of mediation in the public interest field.^^ 

The courts are already in the referral business in many areas for 
the purpose of channeling cases into arbitration.-'^'* Although mediation 

49. L. Mayhew, Law and Equal Opportunity 164 (1968). 

50. From the authors' personal experience litigating both on behalf of and against the 
United States government, it would appear that the Department of Justice approaches litiga- 
tion cost control solely by tinkering with the amounts available for expenditure in litigation. 
Perhaps no one has considered any other alternative. 

51. See supra note 13 & accompanying text. 

52. For some time such projects have received senous consideration in federal court 
administration policy discussions. See, e.g., Dunlop. The Limns of Legal Compulsion, 11 
Lab. L.J. 67 ( 1976); Johnson, Let the Tribunal Fit the Case — Establishing Criteria for Chan- 
neling Matters into Dispute, 80 F.R.D. 166, 167-80 ( 1980). 

53. The authors believe that until non-adversarial processes are much belter known 
and much more widely understood, court referral is essential. 

54. Local Rule 500 of the United States Distnct Court for the Northern District of 



226 



1242 THE HASTINGS LAW JOURNAL [Vol. 34 

would require initial screening of a sort quite different from that re- 
quired for arbitration, arbitration programs do demonstrate that a re- 
ferral process is feasible. Cases appropriate for mediation could be 
referred by the court on its own initiative or at the request of the par- 
ties. Court referral has the advantage of letting the parties undertake 
negotiations without either side having to be the first to propose settle- 
ment talks.55 Settlements could be entered as orders of the court in 
appropriate cases. 

Mediators could be drawn from panels of appropriately trained 
persons including but not limited to lawyers. Such a mixed panel is 
recommended to provide for situations where process considerations 
outweigh formal legal considerations. Mediation is faster and less ex- 
pensive than Utigation,^^ so a pilot program in the court could be 
funded for a relatively small amount. Costs could be defrayed by re- 
quiring modest fees from participating parties, thus giving them an ad- 
ded psychological investment in making the process work. If a pilot 
projea demonstrates cost-effectiveness and settlement results, media- 
tion referral programs in the courts can readily be made self-supporting 
by fees charged.^^ 

Our second proposal is that the federal government explore the 
possibilities for mediated negotiations to resolve its own disputes. The 
United States frequently is involved in public interest litigation as a 
result of efforts by both corporate and public interest advocates to fore- 
stall unwanted governmental action. ^^ Government officials often rely 
on Utigation to avoid pohtically difficult decisions. This reliance is ex- 
pensive and time-consuming as well as questionable as a matter of 
policy. 5^ 

California is representative of this type of court ordered arbitration, with trial de novo avail- 
able on demand of either pany within thirty days of entry of the arbitrator's award. 

55. In the world of the advocate, the initiative and timing of an offer to discuss settle- 
ment is often a carefully planned part of litigation strategy because of the perceived risks of 
an untimely overture. 

56. While hourly fees for mediators are comparable to those of litigation lawyers, a 
mediation may require only a few hours of a mediator's time, and rarely more than a few 
days, as contrasted with the enormous billing for litigation. 

57. Fees could be apportioned among the parties, to reflect their relative economic ca- 
pacities. For example, when one party is substantially less prosperous than another, it is not 
unusual for it to offer to pay the first few days of mediation costs or some substantial per- 
centage of the daily rate. Arrangements such as this tend to even out the risks of trying this 
alternative. 

58. An experiment in involving interested parties in negotiations over the terms of fed- 
eral agency regulations prior to promulgation has already been set in motion. See Harier, 
Negotiating Regulations: A Cure for the Malaise?, Report to the Comm. on Interagency Co- 
ordination of the Admmistrative Conf. of the United States (Jan. 1982). While it is still too 
early to appraise the effectiveness of this model, its existence is a healthy sign of willingness 
by the federal government to explore alternatives to litigation. 

59. Litigation against the government in the public interest area is often a prime exam- 



227 



May/July 1983] ROLE OF MEDIATION 1243 

It will not be enough to make federal mediation services avail- 
able.^o Officials charged with the responsibility for developing and im- 
plementing government policy must learn to think in terms of 
collaborative rather than adversarial processes. This would require a 
major commitment from the highest levels of government, for the liti- 
gation habit is deeply ingrained. 

The current economic situation is a good environment for such 
redirection, however. Even if Congress did no more than include a line 
item in every budget for settlement services, leaving it to each agency to 
decide how to use the money, we submit that there would be measura- 
ble savings by the end of each fiscal year. 

Conclusion 

Public interest groups, state and federal governments, and private 
corporations that frequently engage in public interest disputes should 
take the lead in increasing the use of negotiated alternatives to litiga- 
tion. Even without the creation of new opportunities for the use of 
mediation, public interest litigants can avail themselves of the services 
of a growing number of private dispute resolution seryices.*^^ 

pie of the limilaiions of liligaiion in addressing the underlying issues in a dispute. Consider 
the foilowmg two cases. In Environmental Defense Fund v. EPA. 636 F.2d 1267 (D.D.C. 
Cir. 1980). the Environmental Defense Fund (EDF) challenged regulations of the Environ- 
mental Protection Agency (EPA) which exempted from statutory ban roughly 95% of com- 
mercial PCB users. In a second case, Standard Oil Company attempted to secure judicial 
review of FTC procedures in a pending administrative law action concerned with charges of 
monopoly practices. Standard Oil Co. v. F.T.C., 475 F. Supp. 1261 (N.D. Ind. 1979). 

The EDF eventually obtained a court order requiring reconsideration of the exemp- 
tions. During the reconsideration period (which was extended to almost two years) no com- 
prehensive regulation of PCB usage has been in force, other than a limited interim 
inspection program negotiated by the panies. The first of the revised EPA regulations were 
not published until August 25, 1982 — and were promptly challenged by both industry and 
environmental groups. The regulations dealing with the bulk of the PCB problem are slated 
for publication before December 1, 1983, with final regulations targeted for July 1, 1984. 
This time the regulations have been the subject of intense negotiations among the interested 
panies. the results of which have served as a framework for the EPA's proposals. Conversa- 
tions with Jacqueline Warren, former EDF counsel, Sept. 1982, and with the EPA's Office of 
Toxic Substances, Oct. 1983. 

In the FTC case, after two rounds in the federal district court wrangling over discovery 
rights in the administrative action, the parties ended up before the court of appeals just in 
lime for the FTC's voluntary dismissal of the underlying administrative action. Conversa- 
tion with Marge Coleman, FTC attorney, Sept. 1982. 

The question posed is whether or not these broadside attacks and protracted lawsuits 
were the best way to resolve the legitimate concerns of the parties to these disputes. 

60. The Federal Mediation and Conciliation Service, which operates pursuant to 29 
U.S.C. § 173(a) (1976), and the Department of Justice's Community Disputes Resolution 
Program are already in place to serve as models and provide specialized services. 

61. Representative are the Center for Public Resources' Judicial Panel in New York 
and the San Francisco- based American Intermediation Service. Such organizations provide 



228 

1244 THE HASTINGS LAW JOURNAL [Vol. 34 

Failing some positive commitment to collaborative processes, we 
will remain the victims of our own expertise. Litigation, through in- 
creased refinement and abstraction, has become unbearably burden- 
some and is incapable of meeting the needs of litigants in many cases. 
It is as if, by improving our trial techniques, we have actually reduced 
our ability to resolve conflicts.^^ goth economy and social justice will 
be served by introducing collaborative conflict resolution techniques 
into our procedures for settling public interest disputes. 



I 



panels of attorneys and retired jurists to assist parties in private dispute resolution processes 
such as mediation, "mini-lnals," and neutral fact-finding. The American Arbitration Asso- 
ciation has also begun to offer assistance in non-adjudicatory dispute resolution proceedings. 
62. As one commentator has pointed out: "At times it is as if litigation technology and 
support dominate the lawyers' art." Lundquist, supra note 2, at 4. 



229 



I 



2. BACKGROUND ON DISPUTE RESOLUTION MECHANISMS 
B. Minitrial 



231 



MINI-TRIAL 
IN PRACTICE 



Lester Edelman is chief counsel and frank 
Carr is chief trial attornev of the US. Army 
Corps of Engineers in Washington, DC. This 
article is based on a presentation by Mr 
Edelman at the American Arbitration Associa- 
tion s Mini-Trial Conference m Atlanta in Oc- 
tober 198b 



The Mini-Trial: 

An Alternative Dispute Resolution 
Procedure 

LESTER EDELMAN AND FRANK CARR 



The U.S. Army Corps of Engi- 
neers, concerned about the increas- 
ing time and expense to settle gov- 
ernment-contract claims, examined 
alternatives to the traditional meth- 
od of resolving disputes before 
boards of contract appeals. The op- 
tion that it chose was the mini-trial, 
a voluntary, expedited, and nonju- 
dicial process whereby the top 
management officials of each party 
meet to resolve a dispute. 

The Corps of Engineers adapted 
the mini-trial to best suit its own or- 
ganizational needs. This article de- 
scribes the factors that were consid- 
ered in designing the mini-trial and 
the Corps' experience with the pro- 
cess over the past few years. 



/ m Chinese proverb says that "go- 
ing to law is losing a cow for the sake 
of a cat." Although the government 
rarely litigates over a cow, the time 
and cost of litigation has escalated 
substantially over the years. In the 
government-contracting area, the 
present administrative appeal process 
for contract claims is neither timely 
nor inexpensive. Typically, a contract 
claim docketed before a board of 
contract appeals will consume years 
of effort until resolution. For the 
claimant, the cost of litigation, delays 
in receiving a decision, and the dis- 
ruption to corporate management 
have made the present administrative 
system unsatisfactory. 

The costs of pursuing a claim be- 
fore a board of contract appeals have 
risen dramatically. Now, almost every 
claimant is represented by an attor- 
ney whose fees and expenses add to 
the cost of litigation. The rising use of 
attorneys is accompanied by an in- 
crease in discovery and its related 




MINI-TRIAL IN PRACTICE 7 



232 




costs. The experience of the U.S. 
Army Corps of Engineers has shown 
that the discovery conducted in a 
board proceeding is now as extensive 
and costly as before a court. Further, 
claimants must continue to finance 
their current projects without the 
benefit of any of the proceeds from 
the claim. 

Another source of dissatisfaction 
to the claimant is that the boards of 
contract appeals are slow In issuing 
decisions. The average nonexpedited 



case takes two to three years from 
date of filing to date of decision. Fur- 
thermore, in a complex case, it Is not 
unusual for three to four years to 
elapse before the board releases a de- 
cision. Unfortunately, no quick and 
easy solution is available to the pro- 
cess under the present administrative 
system. 

Finally, the disruption to the 
claimant's management is self-evi- 
dent. To support the litigation, the 
claimant is forced to pull technical ex- 



perts and professionals from other 
projects. This Is the ripple effect of 
litigation on management operations. 
For the government, the costs, 
delays, and disruption are equally as 
great. Cleanly, the delay In getting de- 
cisions Is Identical to that encoun- 
tered by the claimant and just as frus- 
trating. Furthermore, funding the 
litigation is expensive In attorney 
work hours and resources devoted 
both to discovery and the hearing. In 
addition, securing funds to pay suc- 



THE ARBITRATION JOURNAL, MARCH 1987, Vol. 42, No. 



233 



cessful claimants, plus accrued inter- 
est, when the underlying project has 
long been completed is not always 
easy. 



THE SEARCH FOR ALTERNATIVES 

The U.S. Army Corps of Engi- 
neers in 1984 recognized these prob- 
lems and decided to consider alterna- 
tives to the traditional method oi 
resolving disputes before the boards 
of contract appeals. The goal was to 
develop a process that was quicker 
and less costly than a board proceed- 
ing. Several different dispute resolu- 
tion methods were evaluated, includ- 
ing nonbinding arbitration and 
mediation. Expanding the number of 
personnel assigned to handling con- 
tract claims and appeals was also con- 
sidered. 

Increases in the number of 
judges and attorneys to handle gov- 
ernment contract claims appeared to 
provide a simple answer; however, 
more employees was not a viable so- 
lution, since the government was in 
a period of personnel reduction. 
Therefore, in order to process con- 
tract claims and appeals in a timely 
manner, the Corps of Engineers had 
to consider innovative alternative dis- 
pute resolution (ADR) procedures. 

The Corps of Engineers exam- 
ined the mini-trial process, which was 
originally developed in 1977 to re- 
solve a patent infringement suit.' Af- 
ter reviewing this ADR technique, it 
was decided to fully develop the con- 
cept to match the Corps' unique or- 
ganization. The adapted mini-trial 
was then tested and evaluated in a pi- 
lot program. The result of the pilot 
program was the resolution of several 
complex contract claims in a matter of 
months. These claims most likely 
would have taken years to conclude 
had litigation been used. In addition, 
the mini-trial was inexpensive to use 
and the disruption to management 
was minimal. 



CHARACTERISTICS OF THE 
MINI-TRIAL 

The word mini-trial is really a mis- 
nomer, since the process is actually a 
structured negotiation process rather 
than a judicial proceeding. It blends 
characteristics from several dispute 
resolution sources — negotiation, ar- 
bitration, and mediation. 

It is difficult to define a mini-trial. 
A definition has, however, been de- 
veloped for its application in the 
Corps of Engineers. A mini-trial, in 
the Corps, is a voluntary, expedited, 
and nonjudicial process whereby the 
top management officials of each 
party meet to resolve a dispute. 

Emphasized in this definition is, 
first, that the process is voluntary. 
Both parties must agree to use the 
mini-trial, and either may withdraw at 
any time without prejudicing its litiga- 
tive position, Second, the process 
must be expeditious. The parties 
must commit themselves to an expe- 
dited procedure to realize the afore- 
mentioned benefits. Third, the mini- 
trial is nonjudicial. In contrast to 
traditional litigation, a mini-trial is not 
burdened by the formality and inflexi- 
bility of a judicial proceeding. And, 
finally, management officials of both 
parties meet to resolve the dispute, 
rather than having a third party, such 
as an attorney or a judge, take control 
of the process. 

The general characteristics of a 
mini-trial are easy to understand. 
They expand on the basic definition 
and may be organized into five dis- 
tinct elements. These characteristics 
include involving top management in 
the settlement process; limiting the 
time of the mini-trial; conducting an 
informal hearing; holding nonbind- 
ing discussions; and receiving com- 
ments from a neutral adviser. The 
parties should tailor each of the ele- 
ments to achieve the best fit of the 
mini-trial to the dispute at issue. Re- 
member, the mini-trial is a flexible 
process. 



rather than attorneys and judges, en- 
ables the parties to utilize manage- 
ment skills and policies to resolve a 
dispute that is heavily fact-oriented. 

These management officials 
should be from an organizational 
level higher than where the dispute 
arose. The reason for requiring the 
participation of this level of manage- 
ment is that the principals' delibera- 
tions and judgments should not be 
clouded by any previous involvement 
in the dispute. 

At the mini-trial's informal hear- 
ing, the management officials will act 
as the "principal" representatives. To 
resolve the dispute at the mini-trial, 
it is critical that the principals have 
binding authority. They must be able 
to bind the parties without incurring 
additional delays by referring the dis- 
pute to third parties. 

These principals must also have 
the technical expertise to understand 



"A mini-trial . . . 

is a voluntary, 

expedited, and 

nonjudicial process 

whereby the top 

management 

officials of each 

j>arty meet to 

resolve a dispute." 



• See Corporate Dispute MartagemenI (Center 
for Public Resources, 1982), which discusses the 
evolution of the mini-trial concept from this pat- 



Top Management 

The involvement of top manage- 
ment in the mini-trial is essential to 
the success of the process. Having 
top management decide the dispute, 



MINI-TRIAL IN PRACTICE 



234 



the basic problems underlying the 
dispute. This is important, since the 
time frame of the process cannot ac- 
commodate educating the principals 
in the technical areas necessary to re- 
solve the dispute. 

Short Time Period 

The mini-trial's duration must be 
short or it will degenerate into an al- 
ternative as costly and lengthy as liti- 
gation itself. In most cases, the pro- 
cess should be completed within one 
to three months, including the time 
fordiscovery and trial. Expressly limit- 
ing the scope of the discovery and the 
informal hearing is essential in order 
to complete the process in a short pe- 
riod of time. The parties should agree 
to limitations on depositions, inter- 
rogatories, and other discovery de- 
vices. Any problem encountered dur- 
ing discovery should be handled by 
the parties. As a last resort, the par- 
ties may agree to have the neutral ad- 
viser resolve any discovery problems. 

As regards the amount of time 
the principal must commit to the pro- 
cess, it will be considerably less than 
the one to two months necessary to 
complete the mini-trial. Normally, at- 
torneys acting as representatives for 
each party actually prepare the case 
for presentation to the principals. 
Since the principals will not be in- 
volved in the preparation of the case, 
their time commitment is much 
shorter. The parties may mutually 
agree to prepare the principals before 
the hearing by distributing position 
papers or other narrative materials. 
The parties should agree at the outset 
on a schedule with which they should 
thereafter strictly comply. 

Informal Hearing 

The actual hearing is informal 
and, typically, lasts only one or two 
days. Each party, usually represented 
by an attorney, presents its case to 
the principals. The length of time al- 
lowed for the presentation of the case 
and rebuttal is scheduled in advance 
and is strictly adhered to during the 
hearing. In keeping with the informal 
nature of the proceeding, no tran- 
script of the hearing is produced and 
the rules of evidence and procedure 
are not enforced. 



". . . the disruption to the 

claimant's management is 

self-evident. To supp)ort the 

litigation, the claimant is 

forced to pull technical 

exp)erts and professionals 

from other projects." 




( 



THE ARBITRATION JOURNAL, MARCH 1987, Vol. 42, No. 



235 



The proceedings are not adversa- 
rial, since the purpose of the Informal 
hearing Is to quickly Inform the prin- 
cipals about the Issues and positions 
underlying the dispute. The attorneys 
are allowed much flexibility In the 
manner In which they present their 
parties' position at the hearing. Wit- 
nesses, experts, position papers, doc- 
uments, oral argument, and graphs 
and charts may all be used to quickly 
inform the principals about the dis- 
pute. No objections are permitted. 
Furthermore, witnesses are allowed 
to relate their testimony in a narrative 
form. 

In keeping with the voluntary 
and cooperative nature of the mini- 
trial, the contents of the hearing are 
kept confidential. Neither party may 
use the hearing In subsequent litiga- 
tion as evidence of an admission by 
the opposition. 

Nonbinding Discussions 

At the conclusion of the Informal 
hearing, the principals meet privately 
to discuss the resolution of the dis- 
pute. During the meetings, the prin- 
cipals may break and consult with 
their staff. The staff, however, should 
not be included in the discussions, 
which are private and nonbinding. 
The parties are not required to reach 
agreement. 

Neutral Adviser (Optional) 

The last characteristic of the 
mini-trial is the use of a neutral ad- 
viser to assist the parties in assessing 
the merits of the claim. The use of 
such an adviser Is optional. If the par- 
ties decided to use a neutral adviser 
in the hearing, however, they must 
clearly define that adviser's role. The 
neutral adviser may participate ac- 
tively by questioning witnesses or 
passively by merely furnishing advice 
to the principals. The neutral adviser 
may also assist in establishing the 
hearing schedule and In controlling 
the discovery process. Furthermore, 
the principals may want to include 
the neutral adviser in the nonbinding 
discussions. 

The neutral adviser's opinion 
concerning the merits of the claim 
may be oral or written, as specified by 



the parties. The parties must remem- 
ber that the neutral adviser's opinion 
is advisory only. In any event, that 
opinion may not be used in later liti- 
gation. The parties should also pro- 
vide for the confidentiality of the neu- 
tral adviser's opinions and prohibit 
him or her from acting as a con- 
sultant or witness concerning the dis- 
pute in subsequent litigation. Lastly, 
the expenses of the neutral adviser, 
as with all the costs associated with 
the mini-trial, should be split by the 
parties. 

In selecting the neutral adviser, 
the parties should look for someone 
with considerable experience In gov- 
ernment contracting and In litigation. 
Requiring government-contracting 
experience will eliminate the need to 
educate the neutral adviser about the 
technical details of the case and, 
thus, expedite the process, while liti- 
gation experience will enable the 
neutral adviser to offer reasoned 
opinions on how a board or court 
might resolve the case. Individuals so 
qualified may Include former judges 
from boards of contract appeals and 
federal courts and also law profes- 
sors. 



APPROPRIATE CASES FOR 
MINI-TRIAL 

Perhaps the most crucial part of 
the mini-trial process is the Initial step 
of selecting appropriate cases. Each 
case must satisfy two prerequisites. 
Since the mini-trial process Is volun- 
tary, both parties must first agree to 
the use of the procedure. Second, an 
analysis should be performed to en- 
sure that the purposes of the mini- 
trial (to avoid management disrup- 
tions and save money and time) will 
be realized. Obviously, claims involv- 
ing small sums of money will usually 
not be attractive candidates for the 
process. 

When selecting a case for mini- 
trial, the nature of the dispute must 
be considered. Cases Involving areas 
of law which are unsettled are not 
appropriate for mini-trial. The princi- 
pals Involved in resolving the dispute 
will not be qualified to evaluate com- 
plex legal questions. 

Appropriate cases should involve 
clear legal rules so that resolution of 




the factual Issues will determine the 
outcome of the dispute. For example, 
the benefits contemplated by the 
mini-trial process will not be realized 
if the dispute involves Issues that may 
only be resolved by a motion for sum- 
mary judgment. In addition, an over- 
riding consideration may dictate liti- 
gating the claim for a decision If the 
unresolved legal Issue Involves the 
establishment of Important legal 
precedent. 

Anpther factor affecting the deci- 
sion whether to use a mini-trial is the 
volume of documentation necessary 
to litigate the dispute. Tracking and 
analyzing these documents will re- 
quire a substantial expenditure of re- 
sources. Availability of lawyers, need 
for technical experts, and the ex- 
pected length of the litigation must 
be factored into the analysis. 

The timing of when to initiate the 
mini-trial procedure Is also important 
In order to realize the benefits from 
the process. The facts and issues In 
the case selected should be suffi- 
ciently developed to permit a mean- 
ingful analysis. The Corps' experi- 
ence has shown that the best time to 
consider the mini-trial is early in pre- 
hearing discovery, since the facts and 
issues have been somewhat devel- 
oped but many of the costs of litiga- 
tion have not yet been incurred. 



MINI-TRIAL IN PRACTICE 



236 



"Having top management 

decide the dispute, rather 

than attorneys and judges, 

enables the f>arties to utilize 

management skills and policies 

to resolve a dispute that is 

heavily fact-oriented." 



The most important criterion in 
case selection is probably that the 
parties want to resolve the dispute. 
Typically, it is not an all-or-nothing 
proposition. The parties must be 
committed to resolving the dispute 
with a minimum of expense, delay, 
and disruption. 

MINI-TRIAL PROCEDURES 

Corps of Engineers' Organizational 
Structure 

The U.S. Army Corps of Engi- 
neers has issued an Engineers Circu- 
lar, which provides guidance on the 
procedures to be used in conducting 
a mini-trial. The development of 
these procedures was shaped by the 
Corps' internal organization. An un- 
derstanding of the managerial struc- 
ture is important to fully appreciate 
how the mini-trial concepts are ap- 
plied to a specific organization. 

The Corps' organization consists 
of three levels of management. First, 
the individual district offices adminis- 



ter most of the contracts. The con- 
tracting officers, who award contracts 
and decide contractor claims, are 
normally found at this level. The divi- 
sion office acts as an intermediary 
level of management review for sev- 
eral districts. The final review in the 
Corps system is at the headquarters 
in Washington, DC. 

In selecting the top management 
official to represent the Corps, the in- 
ternal organization was considered 
In the Corps, the division engineer 
has review authority over the dis- 
trict's claims and appeals but usually 
does not have personal working 
knowledge concerning an individual 
claim. In addition, he or she usually 
has an extensive engineering back- 
ground. Consequently, in the Corps' 
regulation, the division engineer was 
designated to represent the Corps as 
its principal. In order to be able to 
bind the Corps, the division engineer 
was given contracting officer author- 
ity and the discretion to select cases 
for mini-trial. 

Since the division engineer can 



decide to use a mini-trial to resolve a 
specific dispute, the claimant may 
make a direct request for a mini-trial. 
Within the Corps, the division engi- 
neer has absolute discretion to deter- 
mine whether to use a mini-trial. 

When the division engineer of- 
fers the claimant an opportunity to re- 
solve the dispute through a mini-trial, 
it must be clearly indicated that par- 
ticipation in this process is voluntary 
and will not prejudice the claimant's 
appeal before the board of contract 
appeals. The division engineer also 
describes the procedure to the claim- 
ant and states that a written agree- 
ment is necessary to outline the pro- 
cedures used for the mini-trial. 

Mini-Trial Agreement 

A written agreement between the 
parties forms the foundation for a 
successful mini-trial. The mini-trial 
agreement should specify the names 
of the principals, identify the issues in 
controversy, and state the name and 
role of the neutral adviser, if one is to 
be used. 

The agreement should also allo- 
cate the expenses of the proceeding 
between the parties, outline the dis- 
covery process, and establish time 
schedules. The dates and times for 
discovery, hearing, and discussions 
commencing after hearing should all 
be specified. By stipulating time 
schedules in the mini-trial agree- 
ment, the parties plan and commit to 
conducting the mini-trial in a timely 
fashion. The agreement discourages 
the tendency to postpone events nec- 
essary to complete the process. 

Since the mini-trial is a nonjudi- 
cial proceeding, the adjudication of 
the appeal will continue unless the 
parties take some action to suspend 
the litigation. The parties should, 
therefore, file a motion with the ap- 
propriate board of contract appeals to 
postpone the proceedings. The mini- 
trial agreement may expressly pro- 
vide for the joint filing of such a mo- 
tion. 

Discovery 

After the mini-trial agreement is 
finalized, the parties will engage in 
discovery, as outlined in the agree- 
ment. The parties may want the mini- 



12 THE ARBITRATION JOURNAL, MARCH 1987, Vol. 42. No. 



237 



trial discovery to be on the record for 
use in subsequent proceedings in the 
event the mini-trial is not successful. 
To save time, the parties should limit 
the time and scope of discovery in the 
mini-trial agreement. For example, 
the parties may limit the number and 
time for depositions and specify the 
number of interrogatories that each 
party may submit. As explained ear- 
lier, the mini-trial agreement should 
set the time for completion of discov- 
ery. It is recommended that the par- 
ties complete discovery at least two 
weeks prior to the hearing. 

Prehearing Matters 

At the conclusion of discovery, 
the parties should exchange written 
position papers, witness lists, and ex- 
hibits, as well as finalize any stipula- 
tions for the hearing. The mini-trial 
agreement should specify the length, 
scope, and format of the position pa- 
pers. In addition, the mini-trial agree- 
ment should require the claimant to 
submit an analysis of the requested 



damages, since the parties will dis- 
cuss both entitlement and damages 
Another subject to clarify at this time 
is the role of the neutral adviser at the 
hearing. The parties may want the 
neutral adviser to actively participate 
in asking questions of witnesses and 
controlling the time schedule. 



Hearings 

At the meeting held in advance of 
the mini-trial, the parties should 
specify all the details concerning the 
informal hearing. Generally, the hear- 
ing should not exceed two days. The 
mini-trial agreement will state the ex- 
act time of each presentation and the 
order of presentation. If the process 
is to succeed, the parties must strictly 
adhere to the time limits. The testi- 
mony will not be sworn and no tran- 
script or record of the hearing will be 
made. The principals and the neutral 
adviser should be allowed to examine 
the witnesses. Closing statements by 
the attorneys should be made, since 



the principals meet immediately after 
the hearing to begin discussions. 

When the principals discuss res- 
olution of the dispute after the hear- 
ing is completed, this meeting should 
be private, but the neutral adviser 
may be included. Should the princi- 
pals desire additional factual informa- 
tion, the attorneys may again examine 
the witnesses in the presence of the 
principals and the neutral adviser. 
Because the process is flexible, con- 
sideration of this evidence is allowed 
after the hearing. 

Termination and Confidentiality 

Two final points should be em- 
phasized. First, either party may with- 
draw at any time during the proceed- 
ings. From the time an offer of a 
mini-trial is extended to the claimant 
until the conclusion of the final dis- 
cussions between the principals, ei- 
ther party may refuse to continue 
with the process without in any way 
prejudicing its case. This is consistent 
with the voluntary nature of the pro 




238 



"Ideally, the mini-trial 
provides both p)arties with 
the opportunity to resolve 

their dispute short of 
incurring the costs, delays, 
and disruptions that would 

result from litigation." 




ceeding. Second, evidence presented 
at the mini-trial will remain confiden- 
tial and will not be used in subse- 
quent litigation, unless the parties 
have agreed otherwise. Mini-trials, 
therefore, are of little risk to the par- 
ties, since the discussions are confi- 
dential and either party may withdraw 
at any time. 

CORPS OF ENGINEERS' 
MINI-TRIAL EXPERIENCE 

In its first attempt at a mini-trial, 
the U.S. Army Corps of Engineers 
successfully resolved a contract claim 
that was pending before the Armed 
Services Board of Contract Appeals 
(ASBCA). The mini-trial involved an 
acceleration claim in the amount of 
$630,570 by Industrial Contractors, 
Inc. The principals resolved the claim 
in less than three days, and the dis- 
pute was settled for $380,000. At the 
mini-trial, the government was repre- 
sented by the Corps' South Atlantic 
division engineer, while the contrac- 
tor was represented by its president. 
The neutral adviser was Judge Louis 
Spector, retired senior claims court 
judge from the U.S. Claims Court. 

The Corps' second mini-trial in- 
volved a dispute arising out of the 



construction of the Tennessee Tom- 
bigbee Waterway. The $55.6 million 
(including interest) claim involving 
differing site conditions was filed at 
the Corps of Engineers Board of Con- 
tract Appeals by Tenn-Tom Construc- 
tors, Inc., a joint venture composed 
of Morrison-Knudsen, Brown & Root, 
and Martin K. Eby, Inc. A vice-presi- 
dent for Morrison-Knudsen acted as 
principal for the joint venture, and 
the Ohio River division engineer rep- 
resented the government. Professor 
Ralph Nash of George Washington 
School of Law was the neutral ad- 
viser. Following a three-day mini-trial 
(June 12-14, 1985) and a follow-up 
one-day mini-trial (June 27, 1985), the 
principals agreed to settle the claim 
for $17.2 million, including interest. 

In addition to the two successful 
mini-trial experiences, the Corps has 
been able to settle several other con- 
tract appeals as a result of the mini- 
trial program. When the Corps was 
considering the use of a mini-trial in 
these other appeals, the parties set- 
tled the dispute. The concentrated re- 
view of these appeals greatly facili- 
tated the settlement. 

Obviously, the parties reap the 
benefits of the mini-trial if the dispute 
is resolved. Experience seems to indi- 



cate, however, that the parties will 
benefit from the mini-trial process 
even if the dispute is not resolved. At 
the very least, the mini-trial process 
will force the parties to clearly formu- 
late the issues early in the process, 
marshal all the relevant evidence, and 
better prepare the attorneys to 
present the case to the board of con- 
tract appeals. 

CONCLUSION 

Ideally, the mini-trial provides 
both parties with the opportunity to 
resolve their dispute short of incur- 
ring the costs, delays, and disruptions 
that would result from litigation. At 
the least, the mini-trial forces the par- 
ties to assess their respective posi- 
tions early in the litigative process. 

The Corps of Engineers' mini-trial 
program has been adjudged a success 
both within the government and the 
private sector. It is to be hoped that 
there will be an increasing number of 
successful mini-trials in the future 
and, as a result, the government will 
be saved from the costs and delays 
associated with litigating contract dis- 
putes. Furthermore, the Corps will 
continue to explore other dispute 
resolution procedures. ■ 



14 THE ARBITRATION )OURNAL, MARCH 1987, Vol. 42, No. 1 



239 



POINTS ON A CONTINUUM: 
DISPUTE RESOLUTION PIOCEDUIKS AND THE ADMINISTRATIVE PROCESS 



PhlUp J. Barter 
June 5, 198C* 



Tliis report was prepared for the Adaiiniatrative Conference of the United 
Statea. "Die views expressed are the author's alone and do not necessarily reflect 
those of the Conference, its Coranittees, or staff. Portions of the report were 
revised prior to publication to reflect subsequent developments in the case law. 



240 



Yin 

MINITRIALS 

Its creators called it an "information exchange", but a New York Times 
headline writer in August 1978 found "mini- trial" to be more descriptive and the 
name stuck. The writer was reporting the quick settlement procedure designed 
by lawyers to untangle years of litigation in a patent case involving TRW, Inc, 
and Telecredit, Inc, 237 

The minltrial Is a flexible, voluntary alternative means for the resolution of 
complex disputes successfully used by businesses, governments, and various 
interest groups. The minltrial was developed with the guiding hand of the Center 
for Public Resources, a non-profit organization formed in 1979 by a group of gen- 
eral counsel of well known Fortune 500 corporations. The new procedure has 
made advances in commercial and consumer dispute contexts where reduction in 
litigation expense is a major goal, and the idea has begun to spread to a wider 
segment of the bar including the government contract field. NASA, the govern- 
ment pioneer in the program, used a minltrial procedure to settle a multimillion 
dollar satellite contract dispute with 5pacecom and TRW. 238 -j^e Justice Depart- 
ment has run a minltrial pilot program In certain military procurement cases, and 
the Army Corps of Engineers has established a pilot minltrial program In several 
of its regions. 



Mioitriai Procedure. 

The minltrial, sometimes referred to as a mini-hearing to indicate the 
relatively informal nature of the process, is a highly abbreviated litigation process 
in which litigants present the heart of their case to senior officials of the other 
party who have authority to settle. "The primary purpose of the minltrial is to 



236. What should be minimally required must necessarily depend on the nature of 
the questions to be resolved. Thus, they process will depend on the subject 
matter. 

237. "Alternatives to the High Cost of Litigation", CPR, N.Y., N.Y., Special Issue 
1985, p. 3. 

238. 4-4 Federal Contracts Report 589. 



24 



set a stage and create a momentum for settlement. "239 Typically the process 
Involves the "exchange of briefs or position papers with supporting documents, 
oral presentations of facts and law to senior officials of the opposing parties, 
some opportunity for questioning, and negotiation by the senior officials to 
attempt to settle the dispute. "240 ^n advantage of the minltrlal is that It focuses 
the attention and energy of executives on both sides of the dispute and forces 
them to participate directly in the negotiated settlement. \nother desirable 
feature of the minltrial is its flexibility: the parties can tailor the essential 
elements of the procedure to fit the litigation at hand. 

Parties are motivated to adopt the minitrlal procedure by several factors-- 
avoldance of high litigation costs, avoidance of adverse outcomes of litigation, 
the need to return employees supporting the litigation to more productive activi- 
ties, and the desire to maintain a reasonably cordial relationship between litigants 
who may wish to continue doing business together in the future. 241 

The parties typically negotiate the groundrules at the outset and often 
suspend or curtail discovery. This would suggest to parties, who have an eye on 
the possibility of suspending normal litigation and attempting the minitrlal, to 
make a careful schedule of depositions. 242 Because the minitrlal may be elected 
before the end of discovery, the parties should depose those individuals whose 
testimony will have the most substantial impact. 243 

The minitrlal is wholly voluntary so the parties must genuinely want to see 
it used as a means of settlement for it to succeed. 244 obviously the threshold 
question for the parties to consider is whether the nature of their dispute lends 
itself to the mini-hearing process. 245 one of the developers of the minitrlal 
offered the following observation on the decision of whether to use the process: 

It may not be appropriate where precedent-setting issues of law and 
witness credibility are the central issues and where the client has made 
a business determination to roll the dice. It can, however, be tailored 
to fit most large scale disputes involving mixed questions of law and 
fact, particularly where issues of science and technology are important. 
For most large, entrenched cases, the minitrlal offers a better alter- 



239. Minitrlal Successfully Resolves NASA-TRW Dispute , The Legal Times, Monday, 
September 6, 1982, p. 17. 

240. Parker, Douglas M. and Phillip L. Radoff, The Mini- Hearing; An Alternative 
to Protracted Litigation of Faotually Complex Disputes, 38 The Business 
Lawyer 35, November 1982. 

241. Minitrlal supra 239 at 17. 

242. jd. 

243. "Alternatives to the High Cost of Litigation", CPR, N.Y., N.Y., Special Issue 
1985, p. 3. 

244. Parker and Radoff, supra note 240 at 42. 

245. Olson, Dispute Resolution; An Alternative for Large Case Litigation , 6 
A.B.A. Litigation Sec. J. 22 (1980). cited in Parker and Radoff, supra note 
240 at 42. 



242 



native to the more common practice of one side and then the other 
occasionally tossing out a settlement offer. 246 

Two obviously related questions to consider are whether one side will have 
gained a tactical advantage if settlement is not reached and what point in the 
litigation process will be the most appropriate to conduct the minitrial.247 
Parties should consider that despite a failure in settlement following the minitrial, 
the process itself aids the parties in preparing and focusing the Issues of their 
cases for future full-blown litigation. 

If the parties decide to use the minitrial, an Important consideration Is 
whether to use a neutral advisor to moderate the discussion. 248 Most, but not 
all, minitrials employ a neutral advisor with special expertise (often a retired 
judge) to "supervise the discussion and to furnish the parties with a nonbinding 
evaluation of the most likely outcome of the dispute were it to wind up in 
court. "249 jn cases of highly technical disputes, some parties have found that the 
introduction of a neutral advisor causes additional expense and possible delay 
because the advisor must become sufficiently educated. 250 j^ ^j^g NASA case 
explained below, for example, the parties never seriously contemplated using a 
neutral advisor, 251 

Relatively short written briefs discussing the applicable facts and law are 
usually exchanged prior to the minitrial. 252 More comprehensive briefs are 
sometimes helpful or necessary in narrowing the issues in advance of oral 
presentations. 253 in the NASA case, for example, the briefs were rather lengthy 
and also were followed by a simultaneous exchange of written questions to be 
responded to at oral presentation. 254 

The hearing itself usually lasts no more than two days for the parties to 
state their cases (excluding extraneous issues), offer evidence for their positions, 
and field questions. 255 Presentations can be made by lawyers, technical experts, 



246. Parker and Radoff, supra note 240 at 42. 

247. W. p. 35. 

248. Id. p. 43. 

249. "Alternatives to the High Cost of Litigation", CPR, N.Y., N.Y., Special Issue 
1985, p. 3. 

250. Parker and Radoff, supra note 240 at 43. 

251. Id. 

252. W. 

253. Id. 

254. Minitrial supra note 239 at 13. 

255. Alternatives to the High Cost of Litigation , CPR, N.Y., N.Y., Special Issue 
1985, p. 3. 



243 



or a combination of both. 256 ^t the conclusion of the hearing, the negotiating 
officers go off on their own to settle the dispute, with legal advisors standing by 
for consultation. If they reach an impasse, and have proceeded before a neutral 
advisor, the parties can request an advisory opinion on the likely outcome. The 
advisory opinion often acts as a catalyst towards settlement. 257 with or without 
a neutral advisor, any deadline set by the parties can contribute to lending a 
sense of urgency to resolving the dispute. 258 

Use by Government Agencies. 

TTae growing movement in corporate and consumer disputes to save time, 
money, and judicial resources through alternative dispute resolution techniques — 
such as minitrials — has slowly reached the government setting. 259 Exploration 
of the new technique should be helpful since the government has experienced the 
same rising litigation costs and Interminable court delays as private parties. 
Several perceived statutory and practical obstacles have impeded the government 
in using creative dispute resolution methods, however. The minitrial may be 
particularly well suited to overcome these obstacles. 260 

One obstacle which makes government contract disputes distinct from 
commercial litigation is the elaborate disputes resolving statutory procedure 
mandated by the Contract Disputes Act of 1978.261 The statute applies to all 
contracts entered into after March 1, 1979. A key provision of the statute 
mandates that all government contracts include dispute clauses which set forth 
procedures by which disagreements relating to the contract must be resolved. 282 
The procedure requires the government to make a final written decision concern- 
ing the disagreement with the contractor including all the facts and legal 
conclusions which led the government to deny the contractor's claim. 263 Upon 
receipt of the government's final decision, the contractor has three options; (1) 
acquiesce; (2) appeal the decision to an agency board of contract appeals; or (3) 
sue in the U.S. Claims Court. 264 

Whether these statutory procedures are exclusive is a question which raises 



258. Parker and Radoff, supra note 240 at 43. 

257. Cong. Rec. S14707 (November 1, 1985). 

258. Parker and Radoff, supra note 240 at 44. 

259. Crowell and Morlng Discussion Paper, Alternative Resolution of Government 
Contract Disputes, p. 1. 

280. Minitrial supra note 239 at 21. 

261. 41 U.S.C. 8§ 601-613 (Supp. IV 1980). 

282. Minitrial supra note 239 at 19. 

263. Id. 

264. Id. 



244 



an impediment to the government's use of the minitrial technique. 265 pq^ 
example, in Davis and Moore , ^66 the Interior Board of Contract Appeals held that 
the government cannot submit to binding arbitration because of conflict with the 
statutory procedures. 267 The government's authority to settle and to devise 
means of settling, however, has never been doubted because in fact a basic 
purpose of the Contract Disputes Act was to promote more efficient resolutions of 
disputes. 268 

A second serious obstacle facing government use of expedited settlement is 
"the natural inclination of agency officials to follow the book, in resolving 
disputes, thereby theoretically avoiding congressional and public criticism. "269 \ 
plethora of organizations outside the agency review and second-guess any 
settlement. Potential reviewers and possible critics include oversight committees 
of Congress, audit teams from the General Accounting Office, and the agency 
inspectors general, 270 ^g v^en ^^3 ^^e general public. The use of minitrials may 
actually ease this problem, however. The process requires a written record 
clearly documenting the issues of settlement, potential litigation risks are clearly 
described by the legal positions set forth in the briefs, and the formality of the 
procedure itself may lessen criticism. "271 

A third perceived constraint unique to the federal contracts context is the 
question of settlement authority. Federal agencies have a rigid chain of command 
and settlements must often be approved by the legal, financial, procurement 
policy, and technical divisions of an agency. 272 Tentative settlements are often 
upset by subsequent internal agency review. The minitrial procedure may also 
obviate much of this problem. In preparation for the minitrial, the government is 
forced to define the authority of the negotiation and the acceptable negotiating 
position. The advance approval and "written authorization from the head of the 
agency, empowering the representative on behalf of the agency to reach a 
settlement, reduces the opportunities for overturning the settlement. "273 

Finally, a related problem for the government is the question of settlement 
funding requirements. 274 ^ negotiating officer for the agency obviously cannot 
ultimately make settlement without the funds to cover it, Minitrial requirements 



265. Id. 

266. IBCA No. 1308, 81-2 BCA 91 15,418. 

267. Minitrial supra note 239 at 21. 

268. ]d. S. Rep. No. 3173. 95th Cong., 2nd Sess. 119781. 

269. Crowell and Moring, p. 1. 

270. Minitrial Successfully Resolves NASA-TRW Dispute, The Legal Times, Monday, 
September 6, 1982, p. 21. 

271. Id. 

272. Id. 

273. Id. 

274. Crowell and Moring, supra note 259 at 6. 



245 



in some ways relieve these problems by involving senior officials who have the 
authority to approve "re-allotments". 275 Re-allotments can be made within the 
agency to cover the financial needs for a particular settlement. 

Despite the putative obstacles mentioned above, the government has already 
begun exploring alternative dispute resolution ("ADR") techniques, such as 
minitrials, because of several factors relating to litigation, some unique to 
government and some particular to all litigants. 

The most obvious catalyst for exploration of alternative resolution techniques 
is the rising cost of litigation and the court delays which face all private parties 
and with perhaps even greater force the government. 276 Disputes between 
agencies and their suppliers has been the natural result of an increase of federal 
procurement spending. 277 jn fiscal year 1982, for example, 1,273 cases were filed 
with the Armed Services Board ("ASBCA"), the largest administrative board of 
contract appeals, while only 974 cases were filed the previous year. 278 only 95 
of the 1,594 pending cases in 1982 were being processed under optional expedited 
procedures. 279 Although the administrative appeals boards were designed as a 
streamlined alternative to court litigation, the costs are still substantial because 
of the formal procedures adopted by the boards. 280 Minitrials have resulted in 
substantial savings for the parties. In the NASA case, which was the first 
minitrial used in the context of government procurement, one estimate suggested 
that the savings "were probably more than $1 million in legal fees alone. "281 

Another factor making the minitrial particularly attractive to the government 
is related to the required procedures of the Contract Dispute Act of 1978 itself. 
The required disputes clause in government contracts requires that federal 
suppliers continue performance, notwithstanding a dispute with the government. 
The contractor may not stop work and immediately challenge in court an agency 
order or contract interpretation. 282 Another mandatory clause in all government 
contracts, the "changes clause", also allows the government to insist upon changes 
to the contract during performance. 283 Those allowable government changes 
would of course be considered breaches of contract In a commercial setting. 284 
In exchange for those two conditional clauses, the government must pay a fair 



275. Minitrial supra note 239 at 21. 

276. Crowell and Moring, supra note 259 at 2. 

277. Id. 

278. W. 

279. Id. 

280. jd., at 3. 

281. Eric D. Green, Boston University Law School Professor in 44 Federal 
Contracts Report 591, September 23, 1985. 

282. Crowell and Moring, supra note 259 at 4. 

283. Id. 

284. Id. 



246 



amount for additional work. 285 Problems arise, however, when the government 
does not consider one of its directions as being a "change" in the contract. The 
contractor must continue to perform and leave for later the question of who will 
bear costs. 286 An efficient, expedited resolution of the dispute by minitrial 
settlement will lessen the adversarial roles between the government and its sup- 
plier — "a phenomenon that serves the ongoing business relationship of the 
parties to government contracts. "287 

When and for Which Cases, Should the Government Consider Using Minitrials? 

In its pilot program for using minitrial tec-hniques to resolve disputes, the 
Justice Department has directed government attorneys that cases selected for 
minitrial should be at an early stage of litigation. 288 1^^ qq3^ savings of a 
minitrial held after discovery has already been completed may not be signifi- 
cant. 289 In addition, the case should probably involve more than $250,000 to 
justify expenditure of at least a full day's time of high-level company executives 
and government officials. 290 

The minitrial technique lends itself well to cases involving highly technical 
concepts and disputes involving mixed questions of law and fact. 291 The NASA 
case was a good candidate to test the minitrial for this reason. The government 
also may wish to consider using the minitrial method in cases involving classified 
defense contracts. The informal settlement can be conducted without an eviden- 
tiary hearing in open court that might be harmful to the national security. 292 

The minitrial is likely less appropriate where witness credibility is a major 
factor. The technique is also probably not justified in cases where questions of 
law can quickly be resolved through summary judgment. 293 Finally, the minitrial 
would not be extremely effective for the government in litigation undertaken to 
implement policy. 294 



285. M. 

286. W. 

287. Minitrial Successfully Resolves NASA-TRW Dispute , The Legal Times, Monday, 
September 6, 1982, p. 19. 

288. 44 Federal Contracts Report 591. 

289. jd., at 589. 

290. jd., at 590. 

291. W. 

292. Crowell and Moring, supra note 259 at 8. 

293. W. 

294. Oliver, Dale E., Crowell and Moring, Alternative Dispute Resolution in 
Government Litigation ; Remarks before the First Judicial Conference of the 
United States Court of Appeals for the Federal Circuit, p. 1. 



247 



The following Is a brief review of two government cases successfully 
resolved through use of minitrial techniques. 



NASA Minitrial. 

The first reported use of the minitrial technique to resolve a government 
contracts dispute was in 1982 when NASA, Space Communications Co. (Spacecom 
— prime contractor), and TRW, Inc. (TRW -- the subcontractor) settled a 
multl- million dollar technical dispute. 295 -phe dispute involved one of NASA's 
communications satellite programs. 

Nature of the Dispute . In December 1976, NASA awarded a major satellite 
contract to Spacecom for the production of a tracking and data relay satellite 
system (TDRSS) and related services to be provided over a ten year period. 296 
The satellites were to be deployed in orbit by a space shuttle and provide a 
telecommunications link to an earth station. 297 The contract had an initial price 
of 1786 million. 298 



TRW, Inc., the principal subcontractor, was responsible for providing system 
leering, 
software. 2y9 



engineering, building the communication satellites and providing the necessary 
29 f 



By the fall of 1981, the commencement of the TDRSS services had been 
rescheduled because of delays in production of the space shuttle; the contract 
price had nearly doubled because of the delays and program changes; and several 
contract disputes had arisen between Spacecom and NASA. 300 -phe disputes, 
ultimately resolved by the minitrial, arose when NASA issued two letters of 
direction to the contractors in early 1979. The letters sought to obtain for NASA 
certain capabilities that it believed were within the scope of the contract. 301 
Spacecom and TRW maintained that the instructions constituted new work which 
entitled them to increased compensation. 302 Spacecom and TRW appealed the 
final decision of the contracting officer to the NASA Board of Contract Appeals. 
The consolidated appeal was one of the largest ever filed with the Board. 303 
These appeals commenced the litigation. 

Scope of Litigation . The litigation involved a series of complex issues 



295. 44 FCR 590. 

296. Minitrial supra note 239 at 13. 

297. 44 FCR 590. 

298. Parker and Radoff, supra note 240 at 37. 

299. Minitrial supra note 239 at 13. 

300. Parker and Radoff, supra note 240 at 37. 

301. 44 FCR 596. 

302. Minitrial supra note 239 at 13. 

303. 44 FCR 596. 



248 



relating to the interpretation of the TDRSS performance specification in a variety 
of highly technical respects. 304 "The merits of the issues involved intricate 
questions of computer capability, electronics, and the laws of orbital mechanics, 
as well as traditional questions of contract interpretation. "305 

The complaint and answers were filed in September 1979 and February 1980, 
respectively. 306 Shortly after discovery began, the parties suspended the pro- 
ceedings for three months to pursue traditional settlement negotiations. 307 
Settlement failed. The parties renewed litigation and engaged in massive docu- 
ment discovery involving the reproduction of approximately 33,000 pages of 
government files and 72,000 pages of the contractors* files. 308 

Depositions commenced in the summer of 1981.309 Although the contractors 
sought 11 depositions and the government sought 43, only 5 depositions actually 
took place. 310 By September, the highly technical examinations of the witnesses 
"consumed 3100 pages of transcript. "31i The widening scope of discovery required 
the Board to push back the hearing date several times and it was estimated that 
trial was still at least a year away. 312 

In the fall of 1981, Spacecom approached NASA with the suggestion to 
undertake settlement discussion again. The parties agreed on a minitrial after 
certain preconditions were set by the parties: (1) the contractors would submit a 
cost proposal with a breakdown of the six major issues of appeal; (2) each side 
would give written authority to settle to an appointed negotiator; (3) deadlines 
and rules of conduct would be agreed upon; and (4) discovery would be suspended 
during the minitrial. 313 

Motivations to use the Minitrial. First, both parties were concerned with 
costs. They had already found it necessary to conduct detailed discovery and 
anticipated substantial additional discovery. The parties had proposed calling for 
the depositions of forty-five additional government and contractor witnesses over 
the next ten months. 314 



304. Parker and Radoff, supra note 240 at 37. 

305. Id., p. 38. 

306. Id. 

307. Minitrial supra note 239 at 13. 

308. Parker and Radoff, supra note 240at 38. 

309. Id. 

310. Minitrial supra note 256 at 13. 

311. Parker and Radoff, supra note 240, at 38. 

312. Minitrial supra note 239 at 13. 

313. Id., p. 13. 

314. Parker and Radoff, supra note 240 at 38. 



249 



Second, the parties were motivated to tighten the schedule, A trial date 
was not even in sight with delays attributable to the complexities of the case, 
problems in coordination between the prime and subcontractor, the difficulty of 
securing people for litigation who were also needed in the TDRSS program, and 
the shortage of people allocated to the case by the government. 315 

A third concern of both NASA and the contractor was the uncertainty of 
result. Both parties were aware that the difficulty of making a clear, comprehen- 
sive and persuasive presentation of such complex issues created an unusual 
uncertainty in the outcome. 316 

Another motivation for the minitrial was the parties' need for continued 
cooperation. Litigation can strain business relations between parties. In this 
case, the parties were required to continue working together to deploy the satell- 
ite successfully, a national asset. They also wanted to release key personnel from 
the litigation process to resume channelling their energies into the program. 317 

Finally, the parties felt the need to address the merits and involve senior 
officials. Spacecom realized that previous settlement discussions had not ad- 
dressed the merits of the issues nor involved face-to-face meetings of senior 
management. 318 it felt that NASA's willingness to invest such time and money 
into discovery suggested that NASA was persuaded that the government's case was 
meritorious. 319 The contractors felt that a settlement could only be reached if, 
through a minitrial, senior management of NASA was exposed to the contractor's 
best case and both parties were able to address the merits. 320 

The Procedure . Before proceeding, the parties agreed that: 

• Litigation would be stayed during the minitrial, 321 but would resume if 
no settlement were reached. 

• The contractors would submit a formal claim covering cost of perfor- 
mance and proposed allocation of cost of each legal issue. 322 

• The parties would simultaneously exchange briefs setting forth their 
factual and legal positions. All cited documents were to be Included in 



315. Crowell and Moring, supra note 259 at 8. 

316. Parker and Radoff, supra note 240 at 39. 

317. Id. 

318. Id. 

319. Id. 

320. Id. 

321. Id., p. 40. 

322. Id. 



250 



appendices. 323 no reply briefs would be filed. 

• Shortly after the briefs were exchanged, each party would submit 
questions to be addressed by the other during its oral presentation. 324 

• The trial was to be one day. Each side was to have three hours to 
make a presentation and could use whatever combination of lawyers and 
engineers it thought appropriate in making the presentations. 325 

• Presentations were to be made to senior officials representing each 
party. An associate administrator of NASA and the director of Goddard 
Space Flight Center for NASA; a VP of TRW and the president of 
SpacecLom, for the contractors. Only senior officials would ask 
questions. 326 

• Settlement negotiations would then begin. 

In the actual minitrial, the oral presentations were made exclusively by 
lawyers. 327 Also, the parties chose not to use a neutral advisor because of the 
complex technical issues in dispute. 328 

Settlement negotiations began the day after the hearing "behind closed 
doors" at NASA headquarters. 329 Only the four principal negotiators directly 
participated in the negotiations but had advisors and legal counsel stand by to 
discuss positions. 330 y^e parties had agreed to a groundrule of limiting the 
settlement negotiations to a single day but decided that an additional day was 
justified by the progress made. The parties settled after their second day of face 
to face meetings and reached agreement on the claim as well as unrelated dis- 
putes. 331 All claims and related issues amounted to well over $100 million. 332 

Army Corps of Sngln«ers Use of the Minitrial 

In the last two years, the Corps of Engineers has used the minitrial 



i 



323. Id. NASA submitted a 64 page brief with a 43 document appendix, while the 
contractor's brief consisted of 81 pages and an appendix of 79 documents. 

324. Minitrial supra note 239 at 13. 

325. Id. 

326. ]d. 

327. jd. 

328. Crowell and Moring, p. 10. 

329. Parker and Radoff, p. 41. 

330. Minitrial supra note 239 at 17. 

331. jd. 

332. Id. 



251 



procedure twice to resolve construction contract claims. ^^-^ Spokesmen for the 
Corps have said that the type of case most suited for a mlnitrlal Is one Involving 
a "highly complex factual dispute in which the contractor's arguments have some 
merit. "334 i^e Corps looks for cases in which there is a possibility that a board 
of contract appeals will sustain the contractor's position where there is room for 
the government to settle. 



335 



Industrial Contractors . The Corps first used the mlnitrlal to reach 

settlement on a $630,000 construction contract claim. 336 j^e claim was made by 
Industrial Contractors, Inc. that the government had "improperly accelerated 
performance on its construction contract. "337 jhe parties agreed to use a mini- 
trial. The contractor's president and the Corps' division engineer each presented 
his claim in three and one half hours, 338 Following an appraisal of their cases 
by a neutral advisor, former Claims Court Judge Louis Spector, the parties settled 
after 12 hours of negotiation. 339 

Tenn-Tom . The second case in which the Corps successfully used the 
mlnitrlal technique to resolve a dispute involved a $61 million construction claim 
by Tenn-Tom Construction. 340 -j^e Corps awarded a contract to construct part of 
the Tennessee-Tomblgbee Waterway, to Tenn-Tom, a joint venture of Morrison — 
Knudsen Co., Brown and Root, Inc., and Martin Eby Construction Co. 341 The 
contract was for excavation of 95 million cubic yards of earth. 342 T^e dispute 
arose when the contractor sought a $44 million equitable adjustment based on 
alleged differing site conditions. The contractor had experienced performance 
difficulties because of drainage problems on site, 343 After receiving written 
denial of the claim by the contracting officer, the joint venture appealed to the 
Corps of Engineers Board of Contract Appeals,344 increasing the claim to $61 
million due to Interest, 

The parties agreed to a mlnitrlal and chose Professor Ralph Nash, a GW 



333, 44 FCR 502; 43 FCR 257. 

334, 44 FCR 502. 

335, ]d., p, 503. 

336, 43 FCR 257 in jd^ 

337, Id. 

338, jd, 

339, Id, 



340. In Re Tenn-Tom Construction , memorandum of settlement agreement, 8/23/85. 
44 FCR 502, 

341. 44 FCR 500. 

342. Id. 

343. Id. 

344. Id. 



252 



professor, as a "neutral advisor. "345 -phe triai was held in Cincinnati on June 
12-14, 1985.346 The principal officers for the parties were J. K. Lemley, Senior 
Vice President of Morrison- Knudsen, for the contractors, and Division Engineer 
Brig. Gen. Peter J. Offringer, for the Corps. 347 jjie parties presented their 
cases on consecutive days, with a third day devoted to presentation of evidence 
concerning quantum and for remaining questions. 348 gy agreement, the parties 
reconvened on June 27, for presentation of further evidence and more questions. 
TTiey settled the next day. ^49 "j^e government agreed to pay Tenn-Tom 517.25 
million in exchange for a release of all prime contractor and subcontractor claims 
under the contract. 350 



345. ]d. at 503. 

346. Id, 

347. Id. 

348. W. 

349. Id. 

350. Id. 



253 



American Bar Association 



REPORT OF SUBCOMMITTEE ON ALTERNATE MEANS OF DISPUTE RESOLUTION 
COMMITTEE ON CORPORATE COUNSEL 



AMERICAN BAR ASSOCIATION 
SECTION OF LITIGATION 



Michael J. Basford 

James W. Quinn 

Co-chairmen of Subcommittee 

on Alternate Means of Dispute Resolution 

Richard I. Janvey 

Michael J. Plishner 

Vice Chairmen of Subcommittee 

on Alternate Means of Dispute Resolution 



William B. Alsup 
Richard E. Anderson 
Thomas R. Beierle 
Mel Bloomfield 
Robert L. Bordon 
Gerard T. Bukowski 
Michael T. Callahan 
Winslow Christian 
T. Neal Combs 
Ronald B. Coolley 
Milton I. Cooper 
Brian Donnelly 
H. Cushman Dow 
Paul Dubow 
Donald E. Engle 
Robert F. Finke 
Kirk G. Forrest 
A. Peter Frank 
Bart Freedman 
Lawrence D. Friedman 
Barry Garfinkel 
William J. George 
Judith A. Gilbert 
Theodore A. Groenke 



Charles R. Morgan 
Paul H. Dawes 
Co-chairmen of Committee 
on Corporate Counsel 



CH*inu*N IlCCI 

MOO Ra.f<«f Bank Tw< 

Smhw imgeioi 
lot }2yJo*a 

VtCl CHflf*UAN 

Su<l> l?OC 

1301 P»rv,r>- vtna »,» 
OC 200O4 



?r?" 



JO? /»7?-00O 

BuociJorficeR 



CMAIHUAH AND SICJION D£lf 0411 

70 rHi MOusc or oeieOATes 



3100 Cotumbtj f 



SECTION OF LITIGATION 1985/86 

750 NORTH LAKE SHORE DRIVE. CHICAGO, ILLINOIS 60611 
ABA/net: ABA213 • WESTERN UNION TELEX #270593 • TELECOPIER 312/98&<4664. 4665. 4666 




ABA n»: ABAI91 



254 



Steven P. Handler 

Lawrence J. Hayes 

John N. Hazelwood 

James F. Henry 

John A. Irvine 

John I. Jefsen 

Lael F. Johnson 

Lawrence M. Jolliffe 

Salem M. Katsh 

Charles F. Kazlauskas, Jr. 

William G. Langston 

Thomas A. Loose 

Paul V. Lucke 

Barry Mandel 

Jonathan B. Marks 

Richard E. Marrs 

Richard S. Maurer 

David Kelso McConnell 

Jesse D. Miller 

Arthur E. Newbold 

Peter J. Novak 

Leonard P. Novel lo 

Douglas M. Parker 

Dorritt Purdy 

Terryl Qualey 

E. Mabry Rogers 

A. Eric Rosen 

Surie Rudoff 

Jerold S. Solovy 

Thomas M. Stanton 

Michael A. Stiegel 

Howard L. Stone 

Richard Walton 

Stephen H. Weiss 

Barry L. Wertz 

Malcolm E. Wheeler 

Linda H. Wish 

Frederic L. Wyckoff 

Members of Subcommittee 

on Alternate Means of Dispute Resolution 



July 1, 1986 



255 



The Effectiveness Of The Mini-Trial In Resolving Complex 
Commercial Disputes: A Survey* 

In recent years, one of the most popular forms of 
alternative dispute resolution employed in large, complex 
cases has been the mini-trial. The mini-trial is a method of 
structuring a case for settlement which generally involves a 
nonbinding information exchange conducted before representa- 
tives of disputing parties with settlement authority who then 
meet to negotiate a settlement. It was created in the late 
1970 's by lawyers who were attempting to resolve a complex 
patent infringement case between Telecredit and TRW, and has 
been used with increasing frequency since that time, 
particularly by large corporate clients in disputes with 
parties with whom they have ongoing commercial relation- 
ships.^ 



* The Subcommittee on Alternate Means of Dispute Resolution 
gratefully acknowledges the substantial assistance of Eric 
Ordway, an associate at Weil, Gotshal & Manges, in the 
preparation of this report. 

1. Descriptions of the Telecredit/TRW mini-trial may be 
found in Green, Marks and Olson, "Settling Large Case Liti- 
gation: An Alternative Approach", 11 Loy. L.A.L. Rev. 493 
(1978) and Davis, "A New Approach to Resolving Costly Litiga- 
tion", 61 J. Pat. Off. Sec'y 482 (1979). For a comprehensive 
description of the mini-trial as a tool for alternate dispute 
resolution authored by one of the originators of the concept 
see Green, Eric D. (editor) CPR - Legal Program Mini-Trial 
Handbook , (Matthew Bender & Co. 1982) and Green, "Growth of 
the Mini-Trial, "9 Litigation 12 (Fall 1982). gee also Fine, 
Ericka S., CPR - Legal Program Mini-Trial Workbook , (Center 
for Public Resources 1985) (hereinafter "Mini-Trial Work - 
book " ) ; Henry, James F. "Mini-Trials: An Alternative to Liti- 

( footnote continued) 



256 



Over the past year, the Subcommittee on Alternative 
Means o£ Dispute Resolution of the Committee on Corporate 
Counsel of the Litigation Section of the ABA conducted a sur- 
vey in which it polled the views of numerous attorneys who 
had participated in mini-trials (hereinafter the "ABA Sur- 
vey"). Each attorney polled in the ABA Survey was asked to 
describe the nature of the dispute which was the subject of 
the mini-trial, as well as the participants in, and the for- 
mat and results of the process. Attorneys were also asked 
generally to comment on the advantages and disadvantages of 
the mini-trial. 

The ABA Survey consisted of interviews with nine- 
teen attorneys and one former judge regarding twenty-eight 
actual or proposed mini-trials (several of the persons inter- 
viewed were involved in more than one mini-trial; three of 
the mini-trials never took place). Five of the attorneys 
interviewed were outside attorneys; the others were inside 
attorneys for large corporations; the former judge was affil- 
iated with a law firm. 2 The ABA sample revealed considerable 



gation,"l Negotiation Journal 13 (January 1985); Parker, 
Douglas M. and Radoff, Phillip L., "The Mini-Hearing: An 
Alternative to Protracted Litigation of Factually Complex 
Disputes," 38 Bus. Law 35 (Nov. 1982); "Use of Mini-Trial 
Seeks to Ease Burden of Corporate Litigation," The Washington 
Post (Oct. 13, 1985). 

2. It should be noted that because some of the attorneys 

(footnote continued) 



257 



variety with respect to types of actions and size of damage 
claims. Sixteen of the mini-trials surveyed involved 
straight contract actions, five involved product liability 
claims and four involved patent disputes. Of the remaining 
three Survey mini-trials, one involved an employee grievance, 
another a simple negligence claim, and a third a dispute over 
insurance coverage. At least three of the mini-trials in- 
volved damage claims of over $30 million (one was for $30 
million, the other two for $40 million); six mini-trials in- 
volved damage claims between $1 million and $10 million; six 
others involved damage claims ranging from $100,000 to 
$500,000.3 Additionally, as demonstrated below, there were 
substantial differences with respect to format, setting, and 
method of decision-making from one Survey mini-trial to 
another . 

This report incorporates the results of the above 
ABA Survey, as well as other current information about the 
mini-trial as a device for resolving disputes. The report 
also provides some recommendations as to how to evaluate the 
suitability of disputes for mini-trials and how to deal with 



were subject to confidentiality provisions in their mini- 
trial agreements, they were unable to provide answers re- 
garding certain aspects of the mini-trials in which they 
participated. 

3. Various attorneys interviewed did not disclose the dollar 
value of the damage claims at issue in their mini-trials. 



258 



some of the problems inherent in the mini-trial. In the 
course of preparing this report, committee members reviewed 
numerous mini-trial materials, including sample mini-trial 
agreements, neutral advisor engagement letters, summaries of 
mini-trials and mini-trial formats. A sampling of these 
materials has been included in the Appendix to this report. 

I. Elements of the Mini-Trial 

A. General 

Ever since the mini-trial was first used, its popu- 
larity has been based on a combination of various attributes, 
including speed, cost-effectiveness, flexibility, and confi- 
dentiality. ^ Perhaps the most important of these attributes 
are speed and cost effectiveness. Mini-trials usually last 
several days, or on rare occasions a few weeks, and require, 
at most, a few months of preparation. Thus, they often re- 
sult in substantial savings on litigation costs. Additional- 
ly, most corporate clients believe that the settlements which 
result from mini-trials are usually superior to the results 



4. Other acknowledged attributes of the mini-trial include 
the following: narrowing the issues in a dispute by elimi- 
nating overly technical and/or collateral considerations 
which may obscure the core problem; preventing unnecessary 
diversions of executive time and energy; and preserving 
ongoing business relationships. See Fine, Mini-Trial 
Workbook , supra at 2-3. 



259 



achieved at trial for comparable cases. Mini-trials can also 
be tailored to the demands of the parties and can be kept 
confidential by means of special confidentiality agreements. 
To ensure the use of the mini-trial as the initial 
means of resolving a dispute, parties to a contract can in- 
sert a provision in the contract which requires them to sub- 
mit their disputes to a mini-trial before pursuing litiga- 
tion. Such agreements have been looked upon with favor by at 
least one court and appear to be enforceable. See AMF Inc. 
V. Brunswick Corporation , No. Civ-85-2743 (E.D.N.Y. November 
4, 1985) ("General public policy favors support of alterna- 
tives to litigation when these alternatives serve the inter- 
ests of the parties and of judicial administration"). 

B. The Agreement 

1. Formal or Informal — An important element in 
setting up a mini-trial is the mini-trial agreement. In many 
successful mini-trials, 5 the agreement is a detailed written 
instrument which lays out the procedures, identity of the 
participants and effect of the mini-trial (Sample mini-trial 
agreements are contained in the Appendix). Through this 
agreement, parties to a mini-trial can do what they are nor- 



5. A "successful" mini-trial is defined herein as one which 
results in settlement of a dispute. 



260 



mally unable to do in litigation/ namely/ fashion the entire 
proceeding according to their needs. Most of the mini-trials 
which were the subject of the ABA Survey were conducted pur- 
suant to such written agreements. 

Mini-trials, however, can be conducted without the 
benefit of a formal agreement. For example/ in two of the 
successful mini-trials studied in the ABA Survey/ agreement 
with respect to the rules and format of the mini-trial was 
embodied in an exchange of letters. In another successful 
Survey mini-trial, the general ground rules were set forth by 
the neutral advisor in a single letter. Notably/ one parti- 
cipant suggested that although reaching some sort of agree- 
ment on rules prior to the mini-trial was probably necessary/ 
it was more important to bring the parties together by initi- 
ating the mini-trial process than it was to worry about 
ground rules. 

It should be noted/ however/ that attorneys who 
choose no*-, to agree on specific rules and format in advance 
of the mini-trial or who agree to handle such matters in a 
less formal manner risk that there will be misunderstandings 
between the parties later which may ultimately impede the 
effectiveness of the process. ThuS/ in one of the Survey 
mini-trials in which there was no formal agreement on format, 
the mini-trial broke down during the information ex- 



261 



change/presentation stage. In another such ABA Survey mini- 
trial, which also failed to reach settlement, the neutral 
facilitator reported that the absence of an agreement on 
ground rules before the mini-trial was a key factor in the 
mini-trial's failure. ^ 

It should also be noted that mini-trials are no 
longer exclusively voluntary arrangements. Some courts have 
begun to order parties to engage in a mini-trial before pur- 
suing litigation. 7 Under court-ordered mini-trials, however 
the parties usually do not have the luxury of drafting an 
agreement to suits their needs; in these cases, the court 
prescribes the rules and format for the mini-trial. As a 



6. In this mini-trial, which involved a $4 million construc- 
tion claim and three different parties, the neutral, a former 
judge, reported that he discussed the subject of the mini- 
trial briefly with the parties in a conference call, and 
agreed to meet with the parties subsequently. The ground 
rules for the format of the mini-trial, however, were never 
discussed. When the parties met with the neutral for the 
first time, they showed up with their own witnesses and 
cheering sections. Each side proceeded to present their 
"evidence" in a harshly adversarial manner, which only 
widened the breach among the parties. After the mini-trial 
was over, the parties met separately in different rooms and 
asked the neutral to perform "shuttle diplomacy" to resolve 
the dispute. The neutral reported that the process failed 
and the case did not result in settlement. 

7. Courts in both Michigan and Massachusetts have adopted 
court-supervised mini-hearings or mini-trials in which the 
judge presides as the "neutral adviser." For a summary of 
one court-supervised mini-trial which was conducted in Massa- 
chusetts and for the rules of the Michigan federal court on 
mini-trials see Fine, Mini-Trial Workbook , supra at 56-9. 



262 



result of this lack of flexibility, the court-ordered mini- 
trials may not always be totally satisfactory. Of the 
twenty-eight mini-trials studied by the ABA Survey, only two 
were either ordered or suggested by the court. Although both 
such cases settled, the attorney involved in the court- 
ordered mini-trial was displeased with both the court's impo- 
sition of rules and format and the outcome. ^ 

2. Binding or Non-Binding — Although most mini- 
trials are nonbinding, parties can agree to be bound by the 
results of a mini-trial. In one successful mini-trial which 
was the subject of the ABA Survey, an employee grievance dis- 
pute, the parties entered into just such a binding mini-trial 
agreement. 5 



8. This mini-trial involved an asbestos dispute. In that 
case, a court in Philadelphia ordered an expedited mini-trial 
with a trial judge from the Court of Common Pleas as the 
"resolver." According to the attorney interviewed, this 
mini-trial, like most others ordered by Philadelphia courts, 
was run like a medical trial in which the only issue consid- 
ered is the medical condition of the plaintiff and in which 
much of the evidence usually admitted at such a trial (i.e., 
evidence concerning employee conditions, product identifica- 
tion, notice of hazard, etc.) is omitted. The attorney's 
main complaint about the mini-trial in asbestos litigation 
was enforceability ("Parties just go through them as quickly 
as possible intending to appeal them afterward"). 

9. In this mini-trial, an employee brought a Title VII claim 
against a large company. The attorney for the company deci- 
ded to hold a mini-trial because he believed he had a strong 
case and because he thought a mini-trial would be cheaper. 
lie pirties agreed that a local law professor would be the 
"arbitrator" of the dispute with full authority to grant such 

(footnote continued) 



263 



Additionally, in an effort to put more "teeth" into 
the mini-trial, some parties to a mini-trial have begun to 
include provisions in the agreement which impose monetary 
penalties on a party which declines to accept a settlement 
offer yet subsequently receives less than the offered amount 
at trial. ^0 There was such an agreement in one of the 
court-ordered mini-trials which was a subject of the ABA Sur- 
vey. In that mini-trial, the parties agreed that after the 
information exchange itself they would each provide the court 
with a dollar figure based on their best estimate of the out- 
come of a trial. The court was supposed to choose as between 
the two figures. The agreement provided that after the court 
made its choice the other side be given 30 days to accept or 
reject the figure, with the understanding that if the other 
party declined to accept the figure chosen by the court and 
received less at trial than it would have received had it 
accepted the settlement offer, then a liquidated damage pro- 
vision would come into play.^^ 



relief as a federal court would grant. They agreed that the 
only grounds on which the decision could be challenged were 
grounds enumerated in the United States Arbitration Act. The 
arbitrator rendered a decision for the company. 

10. See Fine, Mini-Trial Workbook , supra at 5. 

11. This mini-trial involved a $30 million dispute between a 
retail jobber and a large company over alleged misrepresenta- 
tions made by one of the company's employees over an extended 

(footnote continued) 



264 



3. Drafting — For the sake of simplicity and con- 
venience, parties who use mini-trials to resolve their dis- 
putes often base their agreements on sample mini-trial agree- 
ments prepared by the Center for Public Resources, and add or 
revise such samples in accordance with the needs of the case. 
Drafting such agreements in consultation with other organiza- 
tions which sponsor alternate dispute resolution, such as 
Endispute or the Center for Public Resources, is also common. 
Of the twenty-eight mini-trials which were the subject of the 
ABA Survey, four were based on agreements drafted by either 
Endispute or the Center for Public Resources, while in three 
other mini-trials the attorneys indicated that they had con- 
sulted one of these two organizations about some aspect of 
the mini-trial process (e.g. the neutral adviser, the format 
or the setting) .^2 

Although attorneys obviously can draft a mini-trial 
agreement without reference to a sample mini-trial agreement 
or consultation with an ADR organization, many participants 



period of time. The dispute was described as a "swearing 
contest" and became the subject of a mini-trial largely be- 
cause the federal district judge before whom the litigation 
was pending suggested that a mini-trial be used to resolve 
the dispute. The matter was settled after negotiations at 
the figure proposed by the large company during the mini- 
trial process. 

12. Additionally, Endispute participated in the drafting of 
a mini-trial agreement for a Survey mini-trial which was 
never conducted. 



10 



265 



in the ABA Survey generally believed that discussion with 
someone familiai.' with the mini-trial process may be advisable 
for attorneys who have never engaged in a mini-trial. Even 
where an attorney has already participated in a mini-trial, 
several of the attorneys surveyed believed that it may be 
wise to let an ADR organization prepare an initial draft of 
the agreement simply to eliminate the potential for bickering 
with the opposing attorney. 

If an AOR organization does not handle the drafting 
of the mini-trial agreement, it is probably important that 
the drafting be supervised by attorneys, or at least by per- 
sons who are knowledgeable in negotiating contracts. For 
example, in one of the mini-trials covered by the ABA Survey 
which involved a patent dispute, business representatives 
from each side were put in charge of the drafting. That 
mini-trial never took place because the business persons were 
unable to agree on the terms of the format. 

4. Individual Provisions — Although the precise 
content of mini-trial agreements varies from case to case, 
the Survey revealed that the bulk of these agreements include 
provisions which set forth issues to be discussed at the 
mini-trial and the essential obligations of the parties to 
present their cases and attempt to negotiate a settlement. 



11 



266 



Other types of provisions which the Survey disclosed are 
typically found in mini-trial provisions include: 

a) Provisions regarding confidentiality — Unlike 
litigation in the courts, disputes which are resolved through 
mini-trials can be kept confidential by inclusion of special 
confidentiality provisions in the mini-trial agreement. The 
provisions usually stipulate that the parties will not dis- 
close the contents of the agreement or the information ex- 
change conducted pursuant thereto except by consent of the 
parties or through court order. In many of the mini-trials 
studied by the ABA Survey, confidentiality provisions were 
included in the mini-trial agreements. 

In addition to the mini-trial agreement between the 
parties, parties conducting a mini-trial which involves a 
neutral expert will usually ask the expert to sign a secrecy 
agreement in which he agrees to maintain the confidentiality 
of the proceedings (A sample secrecy agreement is contained 
in the Appendix.) ^3 

b) Provisions regarding neutral expert — If the 
parties choose to have a neutral expert, they may want to 
identify the name of the expert in the agreement or else in- 



13. It should be noted, however, that these provisions may 
not prevent disclosure to third parties of information 
obtained in the mini-trial. For a discussion of this 
disclosure problem see infra at 36-7. 



12 



267 



elude a provision in the agreement determining the manner in 
which the expert is to be chosen. ^^ This prevents the selec- 
tion problem from arising later, only a few days or weeks 
before the mini-trial itself is scheduled to begin. ^5 Many 
mini-trial agreements also contain extensive provisions re- 
garding the role which the neutral should play in the mini- 
trial as well as the extent to which the neutral may or may 
not communicate with each party prior to the mini-trial. 
Some agreements provide that the neutral act as a mediator 
between the two business representatives. Others provide 
that he give an oral assessment of the dispute immediately 
after the presentation and then leave the business persons 
alone to negotiate. Still other agreements require that the 
neutral provide a formal written opinion on the merits of the 
dispute. 

In one of the Survey mini-trials which involved a 
patent dispute, the mini-trial agreement, which was drafted 
by Endispute, provided both for a method of selecting the 



14. One common method of providing for the expert's 
selection is to set a deadline in the agreement for choosing 
the neutral and then provide that if the deadline comes 
without the parties having chosen a neutral, an ADR 
organization, such as the CPR, will make the choice from a 
list of advisors. 

15. To ensure the neutrality of the advisor the agreement 
may require that prior to retaining an advisor, the parties 
disclose all previous contacts which the parties have had 
with that proposed advisor. 



13 



268 



neutral and the extent of the neutral advisor's participation 
in the mini-trial. With respect to the neutral's participa- 
tion, the agreement provided that the advisor would tell the 
parties how he thought a court might decide. ^^ 

c) Provisions regarding discovery and exchange of 
briefs — Mini-trial agreements often limit the amount of 
discovery to be had in the mini-trial by specifying that only 
certain kinds of documents be exchanged or by stipulating to 
the number of witnesses, if any, to be examined before the 
mini-trial. Mini-trial agreements may also fix a time limit 
for discovery (usually between 30 to 90 days). This process 
helps to narrow the issues in the controversy and gives the 
parties a "good look" at one another. Most of the mini- 
trials which were the subject of the ABA Survey provided for 
some discovery (usually an exchange of documents) prior to 
the mini-trial. In one mini-trial which was a subject of the 
ABA Survey, the parties agreed to two sets of depositions 
each and one set of requests for admissions, not to exceed 
twenty requests. ^^ Attorneys who failed to provide for some 



I 



16. It should be noted that before giving his opinion in 
this mini-trial, the neutral advisor discussed both the 
contentions of the parties as well as what the parties had 
been able to demonstrate at the mini-trial. 

17. In another Survey mini-trial (involving a $500,000 
contract claim) , the parties agreed to limited discovery over 
a 90-day period including depositions, document production 
and interrogatories. 



14 



269 



discovery before the mini-trial stated that the absence of 
discovery was a disadvantage which led to unfortunate "sur- 
prises'*. On the other hand, one attorney cautioned against 
providing for too much discovery, arguing that discovery can 
usually be limited to production of a few key documents and 
the deposition of a few witnesses. 

Parties may also want to provide for the exchange 
of briefs or position papers before the mini-trial. In at 
least four of the mini-trials which were the subject of the 
ABA Survey, the parties agreed to exchange such papers. 
Moreover, in one mini-trial in which position papers were not 
exchanged, the attorney interviewed indicated that he regret- 
ted not having followed this practice because such an ex- 
change would have been very helpful. 

d) Provisions regarding length of the information 
exchange — Most formal mini-trial agreements contain provi- 
sions regarding the length of the information exchange. 
Typically, such provisions provide that two days be devoted 
to argument (one day for each side).^^, and a third day to 
negotiation. 

e) Provisions regarding format of the mini-trial 
— Many written mini-trial agreements set forth the proce- 



18. One Survey mini-trial involved an agreement to limit the 
mini-trial itself to seven hours. 



15 



270 



dures to be used at the mini-trial itself, including the 
rules of evidence to be used, the manner in which presenta- 
tions are to be made, the number of witnesses to be called 
and the manner in which questions are to be handled. Those 
surveyed generally agreed that the provisions regarding for- 
mat should be flexible, so that both parties feel that they 
will have ample opportunities to present their case. For 
example, in three of the mini-trials which were the subject 
of the ABA Survey, the parties had agreed to a schedule and 
rules (regarding questions, for example), only to abandon 
both the schedule and the rules in the interests of cooper- 
ation when it came time to actually conduct the mini-trial, 
f) Provisions regarding negotiation — Based on 
the Survey, it appears that provisions regarding the negotia- 
tions can be extremely important and must be carefully draf- 
ted. Some mini-trial agreements provide that the negotiation 
take place with the neutral advisor present; others require 
that he not be involved unless the business representatives 
so request. The agreement may also provide that the lawyers 
for both sides be present. These provisions should not be 
underestimated. For example, one of the attorneys polled in 
the ABA Survey indicated that the absence of provisions 
regarding procedures to be followed upon completion of the 
mini-trial in which he was involved was a definite drawback 



16 



271 



which caused months of delay and forced the parties to meet 
frequently to discuss a final resolution of the dispute. ^^ 

g) Provisions regarding fees and costs — Although 
the fees and costs of a mini-trial are not as great as those 
for a trial, they are not insubstantial . 20 Thus, a method 
for sharing such costs should be provided for in the agree- 
ment. The principal costs of the mini-trial are the fee and 
travel expenses for the neutral advisor (including his hotel 
expenses) and the expense of renting a room for the mini- 
trial itself. These costs are usually shared evenly by the 
parties. In two of the Survey mini-trials the costs for the 



19. In this mini-trial, an insured company sued its insurer 
under a business interruption policy in connection with an 
industrial factory explosion. The insured's claim was for 
$40 million. The insurer offered to settle for $5 million. 
The mini-trial was proposed by the insurance company and took 
place about six months after the litigation began. When the 
mini-trial was over, the parties were still not ready to 
settle but were apparently also unwilling to litigate the 
matter. The mini-trial agreement, however, provided no 
guidelines or directives as to what to do next. Thus, short- 
ly after the mini-trial, one of the parties suggested that 
there be further meetings at which more detailed evidence 
could be presented concerning some of the factual issues. 

Two or three such meetings took place over the next few 
months. At these meetings, the mini-trial process was con- 
tinued, with technical presentations made by both sides, fol- 
lowed by a question-and-answer period. These meetings re- 
solved most of the major issues. Then a final meeting was 
held at which the insured made another presentation. Follow- 
ing this, a negotiation session took place on the same day, 
and the matter was settled. 

20. At least two of the attorneys interviewed in the Survey 
noted that the costs of a mini-trial may, under certain 
circumstances, be quite high. 



17 



272 



advisor amounted to $7,500, while in another the cost was 
$5,000. In one of these three cases, the parties split the 
fee. In an employee grievance suit, however, the employer 
may want to agree to pay all fees and costs as an inducement 
to resolve the case via mini-trial. In one such mini-trial, 
which was a subject of the ABA Survey, the employer assumed 
all the costs of the mini-trial. 

C. The Setting 

Another important element of the mini-trial is the 
setting. Most parties surveyed used a non-judicial neutral 
setting for the proceeding. For example, one of the mini- 
trials which was the subject of the ABA Survey was held at 
the Second Circuit Federal Bar Counsel offices at the mid- 
point between the two parties* locations. Another mini-trial 
was held at the law offices of the neutral advisor, while yet 
a third was conducted in the dining room of a private club. 
Hotels or motels and conference centers are also common 
neutral settings. Where neutral settings cannot be found, 
however, a board room (usually of one of the parties) is 
often used. In one of the mini-trials which was the subject 
of the ABA Survey, the board room of one of the parties was 
used. In another subject mini-trial, the parties used the 
law library of one of the parties. In yet a third mini- 



18 



273 



trial, the office of counsel for one of the parties was the 
setting. 21 

The setting may be critical to the success of the 
mini-trial. Some of the participants in the Survey agreed 
that a large, formal setting may lead the participants to 
conduct themselves as they do in a court, thereby inhibiting 
the flow and style of the information exchange. By contrast, 
it was noted that a smaller business setting may lead the 
participants to view the mini-trial as a large negotiating 
forum and thereby contribute to a speedy resolution. 

D. The Decision-Makers 

1. Who Thev Sh ould Be? 

a) Use of a neutral expert — As originally con- 
ceived, the mini-trial provided for the giving of presenta- 
tions either to a neutral expert alone or else to a neutral 
expert and one authorized executive from each side. The 
expert, of course, was designed to be an analog of a judge, 
i.e. , one who could weigh the merits of the presentations 
submitted by the parties and provide an objective opinion. 



21. One law firm regularly holds mini-trials on its prem- 
ises, having set up a courtroom and jury-box solely for this 
purpose. This firm sometimes videotapes the mini-trial and 
presents the tapes to the business representatives later, 
thereby making it unnecessary for them to actually attend the 
proceedings. See "Fred Bartlit on Mini-Trials," Alternatives 
1, (June 1985). 



19 



274 



The ABA Survey demonstrated that mini-trials continue to use 
such experts. In the ABA Survey, sixteen of the mini-trials 
employed neutral advisors and most of the attorneys inter- 
viewed said that the advisors were helpful in resolving their 
disputes. Several of the attorneys interviewed indicated 
that the advisor was most helpful when he was the most 
actively involved in the process. Such active involvement 
often include asking questions of the presenters, giving an 
opinion on the merits of the case, either to all assembled at 
the mini-trial or to the negotiators only, 22 and engaging in 
the negotiations with the business representatives. 23 



22. One attorney interviewed for the Survey indicated that 
he thought the opinion or "forecast" should be given in 
private to the business respresentatives only. 

23. In one Survey mini-trial involving an alleged manufac- 
turing defect in a series of trailers, the neutral "moder- 
ator" took an active role in the presentations, asking ques- 
tions, pointing out the strengths and weaknesses of each side 
and focusing the discussion. The attorney interviewed about 
this mini-trial reported that this dispute was settled one 
day after negotiations and saved the parties $250-$300,000 in 
legal fees. He reported that both sides were pleased with 
the result. 

In another Survey mini-trial, the parties agreed before 
hand not to allow the neutral to participate in the negotia- 
tions unless the business representatives felt comfortable 
with his involvement. Then, after the neutral had given his 
"forecast" of how he thought the case would be resolved at 
trial, both parties chose to involve him in the negotiations 
and the case was settled after only four hours of discussion. 

In addition to volunteering an opinion on the merits of 
a dispute and helping the parties in negotiations, a neutral 

(footnote continued) 



20 



275 



Although some of those surveyed believe that the 
neutral advisor should be a retired judge, preferably with 
experience in the subject matter, or some other person with a 
legal background (e.g., a law professor or trial lawyer), it 
was generally agreed that in principle the advisor need not 
have any knowledge of the law at all. Indeed, he can be any- 
one on whom the parties agree. In mini-trials involving 
highly technical issues or highly specialized areas, such as 
patents, the neutral advisor often is an expert in the field. 
In one patent case which was the subject of the ABA Survey, 
for example, the advisor was the former Comjnissioner of 
Trademarks. In another Survey mini-trial involving patent 
law, an experienced patent lawyer was the advisor. Similar- 
ly, engineers are often the advisors in mini-trials involving 
construction contracts. One attorney interviewed in connec- 
tion with the ABA Survey noted that where large corporations 
were involved it was important to choose a neutral advisor of 
some stature and not merely a "local person." 

Although the ABA Survey reflects that the majority 
of mini-trials still use neutral advisors, the Survey also 
reflects that such persons are not indispensable to the suc- 
cess of a mini-trial. In five of the mini-trials which were 



can also help to design the mini-trial's rules or resolve 
discovery disputes. See Fine, Mini-Trial Workbook , supra at 
14-15. 



21 



276 



the subject o£ the ABA Survey the parties did not use an ad- 
visor. Moreover, in a few of the mini-trials where an ad- 
visor was used, the attorneys interviewed expressed doubts 
about the ultimate need for their presence, particularly 
given the cost of retaining them. 24 other attorneys favored 
the use of advisors but suggested that their role be limited 
and carefully circumscribed with respect to communication 
with clients. For example, one attorney advised against 
allowing the advisor to engage in discussion with the parties 
(usually after the presentations) unless the attorneys are 
also present. 

b) Use of business representatives — In virtually 
all mini-trials, business representatives for each side play 
a key role as decision makers. Indeed, the ABA Survey indi- 
cated that using business representatives as the exclusive 
decision makers is becoming more popular because it avoids 
the costs of hiring the neutral and disputes over his selec- 
tion, and it encourages negotiation. According to a few of 
the attorneys interviewed for the ABA Survey, however, it is 
important that business representatives on the panel have 
little prior familiarity with the case. This is necessary to 



24. For example, one attorney who participated in a Survey 
mini-trial involving complex issues indicated that the 
parties chose not to use a neutral partly because they be- 
lieved it would have taken too long for the neutral to "get 
up to speed" on the issues. 



22 



277 



ensure that the business persons approach the issues in the 
case freshly and as objectively as possible. One attorney 
interviewed indicated that the mini-trial in which he parti- 
cipated was almost completely undermined by the fact that 
throughout the pre-mini-trial period the attorney on the 
other side had been feeding his business person with progress 
reports on the case. 

The business person should probably be a true busi- 
ness person as opposed to a lawyer. This is important be- 
cause a lawyer may be more inclined to be an advocate than a 
negotiator. One attorney involved in a mini-trial which was 
a subject of the Survey expressed resentment that the oppos- 
ing side had chosen a lawyer as their "business person. "25 
Finally, and perhaps most importantly, it is essential that 
the business persons have authority to bind the companies 
they represent. Absent such authority, the mini-trial may be 
a waste of time. 



25. This mini-trial involved a dispute between a private 
company and a state government arising out of an oil spill. 
The state government appointed a senior lawyer from the 
Attorney General's office rather than a busines person as its 
negotiator. The attorney interviewed about this mini-trial 
represented the company. Ironically, according to the attor- 
ney for the company, the appointment of the lawyer from the 
Attorney General's office as a negotiator, though seemingly 
unfair at first, turned out well for the company since its 
appointee was a better negotiator than the attorney for the 
state government. 



23 



278 



Although the role o£ business persons as decision- 
makers at mini-trials has been uniformly held to be positive, 
the attorneys interviewed did have a few reservations about 
the participation of business representatives in the process. 
For example, two attorneys stated that presentation exclu- 
sively to business representatives fosters unnecessary cost- 
splitting. These attorneys argued that when issues are pre- 
sented to businessmen, the tendency is simply to settle for 
half the amount of damages requested by the plaintiff, rather 
than to deliberate carefully with respect to the merits of 
the case. On the other hand, none of these attorneys went so 
far as to say that this tendency merits recourse solely to 
the neutral as a decision-maker. 

c) Size of the panel — As it was originally con- 
ceived, the mini-trial decision-makers were supposed to be a 
panel of three. However, mini-trials can be presented before 
much larger panels. One of the mini-trials which was a sub- 
ject of the ABA Survey was conducted before a panel of seven, 
including one business representative and two attorneys from 
each side and one neutral expert. Another mini-trial panel 
consisted of five persons, two business representatives from 
each side plus one neutral. Still another panel had four 



24 



279 



individuals, two business representatives from one side, one 
from the other, plus the neutral. 26 

Similarly, mini-trials can also be conducted before 
a panel smaller than three. Several years ago, one employee 
grievance mini-trial was put on before one person. 27 Addi- 
tionally, as noted above, the Survey disclosed that there is 
a trend toward making the requisite presentations before a 
panel of two, which includes one business person from each 
side. Generally, most of the attorneys who were interviewed 
for the ABA Survey and participated in mini-trials with large 
panels expressed a preference for a smaller panel. 

E. The Presentations 

1. In-House Counsel, Retained Counsel, or Busi - 
nessmen — Mini-trials can be organized and presented by in- 
side counsel, retained counsel or non-legal representatives 
of each party. Thus far, in most reported mini-trials the 
attorneys have been responsible for both the organization and 



26. Another survey mini-trial also was conducted before a 
panel of four. However, this panel included two neutrals 
(including one retired judge) and two business representa- 
tives. 

27. Although this form would seem to be unattractive to the 
plaintiff-employee, it was successful in the above mini-trial 
primarily because the employee was allowed to pick the execu- 
tive to serve as the decision maker and chose someone whom he 
trusted. 



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presentation of the proceedings. Of the mini-trials subject 
to the ABA Survey, for example, all but two were conducted 
exclusively by attorneys on both sides. 28 However, if the 
issues are simple, from a legal standpoint, and a claim has 
yet to be filed, it may be possible to have the attorneys 
work on the drafting of the mini-trial agreement and let the 
businessmen do the presentations. One attorney interviewed 
in the ABA Survey indicated that he thought non-lawyers could 
handle mini-trials. Additionally, even where the attorneys 
are in charge of the mini-trial, the mini-trial can be struc- 
tured so that the decision-makers ask the questions and the 
"presenters" give the answers ( see infra at 31). 

In an effort to save costs, more and more mini- 
trials are now being handled by inside attorneys. The ABA 
Survey reflects that fourteen of the subject mini-trials were 
run by inside counsel for the corporation. Some attorneys 
feel that using retained counsel is preferable since the in- 
side lawyer may be too close to the dispute. 

Most attorneys agree that whether the "presenters" 
are inside or outside attorneys, it is particularly important 



28. In one of these two Survey mini-trials, an attorney and 
an expert did the presentations for one side, while two 
"technical" persons did the presentations for the other side. 
In the other mini-trial, which involved a patent dispute, one 
of the presenters for one side was a technical person who 
presented arguments as to one issue only. 



26 



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to make one's presentations simple and with flare. This is 
because the presentations usually have to be short and are 
aimed not at judges but at executives who are accustomed to 
hearing advertising-type presentations from subordinates. 
One attorney interviewed for the ABA Survey likened the pre- 
sentations to "closing arguments." Not surprisingly, at 
least three attorneys polled in the mini-trial survey indi- 
cated that attorneys with extensive trial experience are 
particularly well suited to the mini-trial. On the other 
hand, as one attorney observed, any trial lawyer involved in 
a mini-trial must remember to be flexible and have a mind set 
toward settlement as opposed to all-out litigation. Lack of 
such flexibility will invariably inhibit discovery and frus- 
trate the mini-trial process. Trial lawyers must also remem- 
ber that the tactics required in a mini-trial differ from 
those which are needed in a normal trial. As one attorney 
noted, for example, in a mini-trial, it is inappropriate to 
•*go for the jugular." Indeed, counsel must appear reasonable 
and be more "delicate" than usual. 29 

2. Length — The Survey and a review of related 
mini-trial materials indicates that mini-trials typically 



29. In one of the mini-trials that failed to result in a 
settlement, the judge interviewed for the Survey indicated 
that the markedly adversarial nature in which the attorneys 
conducted their examination of the witnesses exacerbated the 
dispute between the parties. 



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last from one to three days though there are few which have 
gone on for a week or more. There appears to be no correct 
length. Disputes which are particularly complex may require 
additional time. To allow time for the information to be 
digested a few mini-trials have even used intervals of two to 
three weeks between sessions ( i.e. » two days of mini-trial 
presentations, two weeks of preparation, then a resumption of 
the mini-trial for two days for examinations, summations, 
etc.). 

In general, however, the ABA Survey reflected a 
preference for speed. All but a handful of the mini-trials 
which were the subject of the survey lasted one day. Attor- 
neys involved in mini-trials which lasted longer than a day, 
said that they would have preferred a shorter mini-trial. On 
the other hand, one attorney involved in a patent case said 
that the brevity of the presentation period was a disadvan- 
tage because it allowed the patent infringer to argue all his 
defenses, without giving the patentee sufficient time to 
rebut the defenses. 30 



30. In this case, the plaintiff was a patentee suing to pre- 
vent infringement of its patent. Although the attorney for 
the patentee sought to set up a three-day mini-trial, the 
other side insisted that each side have only one day to make 
its presentations. According to the patentee's attorney this 
resulted in the defendant's "throwing all of its rocks" on 
the second day, thereby leaving the patentee with too little 
time for rebuttal. The patentee's attorney, however, indi- 

( footnote continued) 



28 



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3. Format — The key common elements of the format 
of the mini-trial are (1) presentations by both sides to a 
panel of decision-makers followed by (2) discussion or nego- 
tiation among the panelists. The ABA Survey revealed, how- 
ever, that beyond these two basic structural elements, the 
format of a mini-trial can be subject to substantial vari- 
ation from one mini-trial to another. The Survey reflected, 
for example, that successful mini-trials can be conducted 
both with and without witnesses, documents or questioning by 
either the presenters or the decision-makers. Similarly, 
successful mini-trial presentations may be made in a partic- 
ular sequence or in free-for-all fashion. 

(i) use of witnesses — The use of witnesses 
during the "presentations" appears to be inconsistent with 
the spirit of the mini-trial, with its emphasis on negotia- 
tion and the avoidance of judicial trappings. The former 
judge who served as the facilitator for four mini-trials 
which were the subject of the mini-trial Survey stated that 
having witnesses at a mini-trial "defeats the purpose" of the 
mini-trial. Nevertheless, at least eight of the successful 
mini-trials in the Survey involved the use of witnesses. ^1 



cated that the matter was ultimately resolved to the satis- 
faction of his client. 

31. One attorney interviewed in the Survey stated that wit- 

(footnote continued) 



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In one Survey mini-trial involving an employee grievance 
suit, there were a total of nine witnesses. In another Sur- 
vey mini-trial, each side presented five witnesses, including 
three employee witnesses, one expert witness plus outside 
counsel. In almost all of these mini-trials, however, the 
rules of evidence used were either quite liberal or nonexis- 
tent. Indeed, there was no cross-examination at all in two 
of these eight mini-trials. Moreover, in another of these 
eight mini-trials the witnesses functioned more as presenters 
of facts and arguments than as true witnesses. ^2 

(ii) use of documents — The use of documents 
in the presentation phase of the mini-trial is also common. 
In five of the mini-trials studied in the Survey, the parties 
used documents to illustrate various contentions or facts. 
In two such cases, the attorney used binders or notebooks to 
organize the documents. One attorney said that he used ten 
key documents in the mini-trial, weaving these documents into 



nesses were used at his mini-trial merely to "clarify the 
issues." Another attorney interviewed in the Survey stated 
that he called on three witnesses in his mini-trial merely to 
supplement his narrative presentation. 

32. Some attorneys have suggested the possibility of using 
court reporters at mini-trials so that the parties might have 
transcripts of the proceedings. Although such a practice 
iright have its advantages in certain circumstances, most 
attorneys do not favor the idea because they believe that on 
the whole it would undermine the informal atmosphere of the 
mini-trial and create a record that might be discoverable. 



30 



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his narrative presentation to the decision-makers. Three of 
the survey mini-trials involved the use of videotapes, charts 
or slides. 

(iii) question and answer — Use of a special 
question and answer period following the presentations is 
also common to mini-trials. Eight of the Survey mini-trials 
made use of such a period. 33 jn two of these mini-trials the 
question and answer period was a free-for-all, in which any- 
one could ask questions of anyone else. One attorney indi- 
cated that this free-form approach was very helpful in clari- 
fying matters for the decision-makers because the issues in 
the case were so technical. In two others, the decision- 
makers were the principal questioners and the attorney-pre- 
senters were the ones giving the answers. 34 Although the 
decision-makers in one of these two mini-trials were allowed 
to ask questions, they were prohibited from impeding the 
mini-trial process by asking "argumentative" questions. 

(iv) arguments — Virtually all of the Survey 
mini-trials involved 45-minute to three-hour statements of 
position or arguments (or summaries of same) by each side. 



33. In one Survey mini-trial there were two such periods, 
one after the initial presentations, another after the re- 
buttal presentations. 

34. In one of these mini-trials the lawyers were precluded 
from asking any questions. 



31 



286 



Six of these mini-trials provided for rebuttal time by the 
other party, with the time for such rebuttal ranging from 
one-half hour to one and one half hours for each side. 

F. The Negotiations 

Like the format for the presentation phase of the 
mini-trial process, the structure of the negotiations is 
usually subject to substantial variation from one mini-trial 
to another. In the vast majority of the Survey mini-trials, 
the negotiations were conducted immediately following the 
presentations and included only the business representatives. 
In a few of the Survey mini-trials, however, the attorneys 
also participated in the negotiations. ^5 similarly, in a few 
of the Survey mini-trials the neutral engaged actively in the 
negotiations. In one of the unsuccessful mini-trials, the 
parties caucused in three separate rooms and negotiated with 
each other through the neutral. 

As for length, many of the Survey mini-trials 
involved negotiating sessions which lasted from three or four 
hours to a full day. However, a few of the mini-trials 
involved several negotiating sessions over a period of time. 



35. In one Survey mini-trial, the neutral ended up negotiat- 
ing with the attorneys rather than the business representa- 
tives, despite the presence of the latter throughout the 
negotiations. 



32 



287 



As with other elements of the mini-trial, there is no fixed 
way of organizing the negotiations. However, to the extent 
that the attorneys interviewed had comments in this regard, 
many agreed that it is probably wise to minimize the role of 
the lawyers in the process. 

II. Problems Associated with th e Mini-Trial 

Like any device for resolving disputes, the mini- 
trial has some inherent problems which may make it unappeal- 
ing to certain parties. Two problems in mini-trials which 
are alluded to frequently by attorneys who have participated 
in mini-trials involve initiating the proposal and preserving 
the confidentiality of the process against third parties. 
These areas are discussed at length below. 

A. Initiating the Proposal 

The first stumbling block in setting up a mini- 
trial is persuading both the other side and one's client to 
participate in it. This can often be difficult, particularly 
if neither side has had any experience with mini-trials or if 
one or the other believes that it has either a clear advan- 
tage or disadvantage in the case. Most of the attorneys 
polled in the ABA Survey whose adversaries had never partici- 
pated in a mini-trial indicated that they met with resistance 



33 



288 



from the other side when they suggested a mini-trial. For 
the same reason, a few of these attorneys indicated that they 
had met with resistance from their own client when they sug- 
gested a mini-trial. It is therefore important to make the 
proposal as attractive as possible to all the parties. 

1. Timing — Timing the proposal so that it does 
not appear to reflect weakness or strength to the other side 
is critical. Mini-trials are sometimes proposed after both 
sides have gone through extensive — and expensive — discov- 
ery and the results have been inconclusive. By this time, 
each side has become familiar enough with each other to 
recognize that the proposal is a genuine attempt to resolve 
the dispute and not merely an attempt to gain an advantage 
over one's adversary. Of the twenty-eight mini-trials which 
were the subject of the ABA Survey ten were undertaken well 
after discovery had commenced. 

Most of the attorneys interviewed in the ABA Survey 
favored initiating the proposal as early as possible, even 
before the filing of the lawsuit. One of the ABA Survey 
mini-trials was initiated prior to the filing of a lawsuit 
and settled successfully. In the eyes of most attorneys 
interviewed, the only problem with mini-trials which are pro- 
posed early is the lack of discovery. A few of the attorneys 
questioned about their participation in mini-trials conducted 



34 



I 



289 



either before or shortly after conunencement of a lawsuit in- 
dicated that the absence of sufficient discovery beforehand 
was a major drawback in conducting the mini-trials. For 
example, one attorney stated that as a result of not having 
had sufficient discovery, his adversary had a much greater 
command of the facts and as a result, dominated the mini- 
trial. ^6 This problem can be ameliorated for by providing 
for discovery in the mini-trial agreement as part of the 
preparation for the mini-trial. At least five of the mini- 
trials which were subject to the ABA Survey provided for 
pre-mini-trial discovery. 

2. Selecting the Initiator — Determining who 
should make the proposal is often a critical decision. Where 
both sides are represented by retained counsel and the liti- 
gation has been acrimonious, it may be preferable for inside 
counsel to make the proposal to his counterpart on the other 
side. Where the parties have an ongoing commercial relation- 
ship the proposal can also be made by a business representa- 
tive in a discussion with his counterpart from the other 
side. Finally, a party may want to consider having a third 



36. Another attorney expressed regret that because of the 
inadequacy of discovery prior to his mini-trial, there was 
insufficient opportunity to determine whether there were any 
"smoking guns" in the documents of the other side. 



35 



290 



party with no connection to the dispute whatsoever make the 
proposal. 

B. Keeping Mini-Trial Statements Confidential 

Another major problem is the discoverability of 
mini-trial statements. Although there is substantial case 
law protecting settlement discussions from discovery, which 
should be applicable to the mini-trial context, under Rule 
408 there is little to prevent third parties from compelling 
disclosure of mini-trial statements or even the opinions of 
neutral experts. In one case, for example, Grumman Aerospace 
Corp . V. Titanium Metals Corp. , 91 F.R.D. 84 (E.D.N.Y. 1981) 
the court granted a motion to enforce a subpoena for a 
special fact-finding report prepared by a neutral advisor in 
connection with a settlement in an unrelated dispute. Pro- 
duction of the report was ordered even though the report was 
subject to a confidentiality agreement which limited use of 
the report in litigation. In its decision, the court held 
that private parties could not be allowed "to contract pri- 
vately for the confidentiality of documents, and foreclose 
others from obtaining in the course of litigation, materials 
that are relevant to their efforts to vindicate a legal posi- 
tion." The court noted that "(t]o hold otherwise would 



36 



291 



clearly not serve the truth-seeking function of discovery in 
federal litigation." 

In light of this decision, parties to a mini-trial 
should take great care in protecting the confidentiality of 
the neutral's role in a mini-trial. Apart from requiring the 
neutral to sign a secrecy agreement, the parties may consider 
having the neutral give an oral opinion, or no opinion at 
all. 37 

III . Types of Disputes Suitable for Mini-Trial 

Although, theoretically, any dispute might be suit- 
able for resolution by way of a mini-trial, historically cer- 
tain kinds of cases have been considered particularly suit- 
able for mini-trial treatment. Conversely, other kinds of 
cases have been thought to be inherently unsuitable to the 
mini-trial form. This section of the report discusses these 
case-suitability issues particularly as reflected in the ABA 
Survey. 



37. For an extensive discussion of this problem see Restivo 
and Mangus, "Alternative Dispute Resolution: Confidential 
Problem-Solving or Every Man's Evidence," in Fine, Mini-trial 
Workbook . supra at 61-76. 



37 



292 



A. General 

Participants in and students of the mini-trial as a 
device for resolving disputes typically believe that a case 
is suitable for a mini-trial only if the parties really wish 
to settle their differences. The ABA Survey confirmed this 
view inasmuch as most of the attorneys interviewed agreed 
that a commitment to settle on the part of the parties was 
critical to the success of the mini-trial. Parties in a 
"swearing contest" will neither be interested in nor aided by 
a mini-trial. 

B. Mixed Law and Fact 

Commentators on the mini-trial have always claimed 
that the type of lawsuit best suited to a mini-trial is one 
with mixed questions of law and fact. Theoretically, this is 
because such cases are not "clear winners." By contrast, 
cases involving purely legal questions are thought not to be 
suitable since presumptively they can more readily be re- 
solved by way of summary judgment. 3® Similarly, it has been 
believed that cases which involve numerous fact issues, be- 
cause they often require extensive discovery, also do not 



38. In the Survey mini-trial involving asbestos (a court- 
ordered mini-trial), the attorney interviewed claimed that 
his case could and should have been resolved by way of 
summary judgment. 



38 



293 



lend themselves to an abbreviated form of dispute resolution 
such as the mini-trial. 

The ABA Survey, however, reflects that the mixed 
fact-and-law case is not the only one suited to the mini- 
trial. One attorney interviewed for the ABA Survey, for ex- 
ample, indicated that a dispute involving purely legal issues 
and no fact issues could also be resolved by way of a mini- 
trial. Moreover, several of the successful mini-trials sub- 
ject to the ABA Survey involved disputes in which complex and 
technical fact issues predominated. 

C. Cases Involving Long Term Business 

Relationships 

Cases between corporate entities who have an ongo- 
ing commercial relationship have also been viewed as good 
candidates for mini-trials. This is because the bad feelings 
which often arise in the context of long drawn-out litiga- 
tions can usually be avoided in the mini-trial because of its 
brevity and more informal structure. 

The ABA Survey confirmed that this type of case is 
among the most suitable for resolution by way of a mini- 
trial. In at least three of the mini-trials which were the 
subject of the ABA Survey, the parties enjoyed an ongoing 



39 



294 



commercial relationship with each other and all of these 
mini-trials resulted in a settlement. 

D. Cases Involving Large Monetary Amounts 

Although a mini-trial can be used no matter what 
the amount in controversy is, from the point of view of the 
parties, the mini-trial has always been thought to be more 
attractive in cases involving larger dollar amounts. This is 
because the savings to the parties are by comparison more 
significant in big cases. As discussed earlier, nine of the 
subject mini-trials involved claims ranging from $1.9 to 40 
million dollars while three others involved $500,000 claims. 
Whether or not the mini-trial is suitable for disputes in- 
volving substantially smaller amounts, however, has yet to be 
shown, since almost all mini-trials have involved sums in 
excess of $100,000 and familiarity with the mini-trial format 
still remains largely the monopoly of a relatively small 
number of attorneys and corporate clients. 

E. Transnational Disputes 

Because disputants are often reluctant to litigate 
in a foreign adversary's court system, mini-trials have be- 
come attractive to parties involved in transnational dis- 
putes. As compared with another form of alternate dispute 



40 



295 



resolution, i ,e. f arbitration, the mini-trial has substantial 
advantages in that 1) it gives the parties much greater free- 
dom in setting up the format and rules for the proceeding and 
2) is usually non-binding and, therefore, involves much less 
risk. Although only one of the mini-trials which was subject 
to the ABA Survey involved a transnational dispute, this 
mini-trial did prove to be a success. A recent compilation 
of summaries of successful mini-trials confirmed that at 
least one other successful mini-trial in the United States 
has involved a transnational dispute. ^9 

F. Cases Where Only Damages Are At Issue 

Cases in which the parties agree on liability but 
differ on the question of damages appear to be ideal for the 
mini-trial. These cases often involve parties who truly want 
to settle their differences but simply do not know how. They 
may also involve cases in which the parties are afraid that 
they will lose face, either by paying more or accepting less 
than they think they should. The mini-trial is a perfect 
solution for these cases because it allows for an up-front 
discussion of the damage issue with feedback from an advisor 
whose recommendations need not be binding. One of the mini- 



39. See Fine, Mini-Trial Workbook , supra at 52 (U.S. German 
mini-trial summarized). 



41 



296 



trials which was a subject of the ABA Survey resolved just 
such a dispute. 



G. Particular Legal Areas Suitable to 
R^gQ;Mt;iQn? v;^ Minj-TyU; 



1. Patent infringement — Commentators have always 
held that a lawsuit involving patents is quite suitable to 
the mini-trial because such a lawsuit is potentially long, 
expensive, and highly technical. 40 The results of the ABA 
Survey, however, do not appear to support this widely held 
view. One attorney polled in the ABA Survey was involved in 
two mini-trials relating to patents, neither of which ended 
well (one broke down during the presentation. stage, while the 
other collapsed during negotiations on format). Another 
attorney stated that he thought that patent cases were com- 
pletely unsuitable for resolution by way of mini-trial be- 
cause such disputes involve "black or white" type answers 
("Either the patent is valid or it isn't"). 

2. Products Liability — For the same reasons that 
have been held to apply to patent suits, products liability 
suits have also been thought to lend themselves to resolution 
through mini-trials, particularly if they are between the 



40. For an extensive discussion of why such disputes are 
thought to be particularly suitable see Borovoy, Roger and 
Janicke, "The Mini-Trial Approach to Resolving Patent 
Disputes", 62 J. Pat. Off. Soc'y 337 (June 1980). 



42 



297 



manufacturer and a distributor or retailer. The ABA Survey 
confirms this inasmuch as five of the twenty-eight subject 
mini-trials involved products liability issues and all of 
them settled to the satisfaction of the parties. However, as 
noted above, product liability suits in which the plaintiffs 
are victims of personal injury are generally believed by 
those surveyed not to be suitable for mini-trials. 

3. Contract — Contract cases involving government 
contracts, or construction and supply contracts are also 
quite suitable for mini-trial treatment because they often 
involve a blending of law and fact. Fifteen of the mini- 
trials subject to the ABA Survey were contract cases and all 
of them were settled favorably through the mini-trial pro- 
cess. Five of the cases involved construction contracts. 



IV. Types of Disputes Not Suitable For Resolution 
vj^ Mini-Trjj^l 



1. Individual Versus the Corporation 

Most mini-trials have been employed in situations 
where both parties are corporate entities. It has generally 
been thought that cases in which an individual is pitted 
against a corporation, e.g. , personal injury cases, are not 
suitable for mini-trials simply because such cases are usual- 



43 



298 



ly too emotionally charged. ^^ The attorneys polled in the 
ABA Survey agreed that lawsuits involving individuals do not 
lend themselves to resolution via mini-trial. At least £our 
o£ the attorneys interviewed, for example, stated that cases 
involving individual plaintiffs are not suitable for mini- 
trials. One of the reasons for this is that individual 
plaintiffs cannot recover punitive damages in mini-trials and 
are therefore unlikely to be attracted to this alternative to 
litigation. 



2. Other Types of Cases Not Suitable For 
Mini-Trials. 



In addition to cases pitting individuals against 
corporations, there are other cases which some attorneys 
interviewed in the ABA Survey indicated may not be suitable 
for mini-trial treatment. One attorney, for example, noted 
that actions in equity are not amenable to mini-trials be- 
cause they are more difficult to compromise than actions at 
law. This same attorney also noted that cases where a state 
or local government is a party may not be appropriate for a 
mini-trial because such parties often cannot be as flexible 



41. One attorney interviewed in the Survey indicated that 
such mini-trials also are not suitable because they are often 
controlled by plaintiffs' attorneys hired on a contingency 
basis, and by claims adjusters, neither of whom has an inter- 
est in settlement. 



44 



299 



in resolving a dispute as private parties can be. According 
to at least two other attorneys interviewed, cases involving 
witness credibility are generally less suitable for a mini- 
trial. 

Additionally, the Survey revealed that for logis- 
tical reasons mini-trials involving numerous parties may be 
more problematic in setting up than those which concern two 
parties only. In one of the Survey mini-trials which in- 
volved more than two parties, for example, no settlement was 
reached partly because of communications problems in laying 
out ground rules. Another Survey mini-trial involving more 
than two parties never took place because it was simply too 
difficult ultimately to persuade all of the parties (there 
were four of them) to engage in the mini-trial. 

V. Conclusions and Recommendations 

A. Conclusions; Summarizing the Results of the 
Survey 

On the whole, the results of the ABA Survey showed 
that mini-trials continue to be highly effective alternate 
tools of dispute resolution for various kinds of cases. In- 
deed, all but four of the mini-trials which were the subject 



45 



300 



of the survey ended in a final settlement, ^2 ^nd sixteen of 
the nineteen attorneys interviewed indicated that they were 
pleased with the outcome and were enthusiastic about engaging 
in a mini-trial again. ^3 several attorneys indicated that 
even if the mini-trials in which they were involved had not 
led to settlement, they would still have considered them to 
be beneficial because they forced the parties to come to 
grips with the issues sooner than they ordinarily would have. 
One of the attorneys interviewed indicated that the mini- 
trial also gives each side a good look at the trial skills of 
the other, thereby providing the parties with valuable infor- 
mation about trial strategy which can be used later, in the 
event that the mini-trial fails to bring about a settlement. 
The results of the ABA Survey also confirmed that 
speed, cost-efficiency, and flexibility, in that order, con- 
tinue to account for the current popularity of the mini- 
trial. All the attorneys interviewed in the survey indicated 
that the mini-trial process was an expeditious means of re- 
solving disputes. Indeed, none of the mini-trials which were 



42. Three of these four mini-trials never reached the 
presentation stage. The fourth mini-trial went through both 
the presentation and negotiation stages but never settled. 

43. One of the three attorneys who did not express his un- 
qualified endorsement of the process indicated that he 
thought the mini-trial was only a "limited success." The 
other two attorneys were both displeased with the outcome and 
"pessimistic" about their use of the mini-trial device again. 



46 



301 



the subject of the ABA Survey lasted more than three days, 
and over half of them lasted only one day or less. Moreover, 
the preparation period for most of these mini-trials (a 
period usually devoted to depositions or an exchange of docu- 
ments) never exceeded 90 days. 

The attorneys interviewed in the ABA Survey also 
stated that mini-trials had led to substantial cost savings. 
One of these attorneys noted that the mini-trial saves costs 
not only because it shortens the dispute resolution period 
but also because it can be organized and run by inside attor- 
neys and can make use of inside experts. Although the magni- 
tude of these cost savings is always difficult to measure, 
some attorneys interviewed indicated that their savings 
amounted to as much as $300,000-400,000. Other attorneys 
interviewed stated that the costs of their mini-trials were 
10% to 15% of what a trial for the same case would have been. 
Additionally, the comments of most of the attorneys inter- 
viewed reflected that the flexibility of the mini-trial, par- 
ticularly the ability to adjust the format of the mini-trial, 
was one of its most attractive features. 

As demonstrated above, four of the Survey mini- 
trials (both actual and proposed) did not achieve their ob- 
jectives. Although no common factor can account for the un- 
satisfactory results in those mini-trials, one or more of the 



47 



302 



following appears to have contributed to such results: 
inability to coordinate multiple parties; lack of communica- 
tion regarding ground rules; a tendency to treat the mini- 
trial as a regular trial; and a reluctance to settle the 
dispute. Most of these problems (i.e. lack of communication 
regarding ground rules, adversarial treatment of the mini- 
trial, inability to coordinate multiple parties) probably 
could have been averted had the parties known more about the 
mini-trial process. 

B. Recommendations . 

1. General 

Based on the results of the Survey, both inside and 
outside attorneys should be encouraged to consider the mini- 
trial as a means of resolving a variety of different types of 
disputes. Although parties should be encouraged to use the 
mini-trial to resolve disputes involving very large sums of 
money, they should not be discouraged from using the mini- 
trial in cases which involve lesser sums, so long as the par- 
ties are seriously committed to settlement. Similarly, 
although parties should be encouraged to consider construc- 
tion contract and product liability claims as particularly 
well-suited to the mini-trial, they should not hesitate to 



48 



303 



view the mini-trial as a means of resolving other types of 
disputes. 

In deciding how to set up the mini-trial, (i.e. the 
agreement, the presentations, the negotiations, etc.), attor- 
neys should be encouraged to be as flexible as possible, but 
should be advised against entering a mini-trial without first 
agreeing on a few basic rules. To the extent possible, the 
parties should attempt to avoid replicating the judicial pro- 
cess at the mini-trial (e.g., examinations of witnesses 
should be dispensed with, or, at the very least, conducted 
very informally). If the parties enter into a detailed 
written mini-trial agreement regarding the 'deadlines and 
format of the mini-trial, they should have an understanding 
which allows for occasional departures from the agreement. 

Attorneys should be encouraged to use business rep- 
resentatives as their primary decision-makers and neutrals as 
facilitators, particularly where the issues are highly tech- 
nical and the business representatives will likely want ad- 
vice from an expert. The parties should also be advised, 
however, that they can dispense with the neutral — and save 
substantial costs in the process — in most other cases, in- 
cluding cases where the legal or factual issues are straight- 
forward and the business representatives have a working rela- 
tionship. 



49 



304 



In order to encourage resort to the mini-trial the 
parties should be encouraged to include provisions in the 
contracts they draft which provide for mandatory recourse to 
a mini-trial prior to the institution of a lawsuit. Inside 
attorneys should consider adopting a policy which commits 
their companies to exploring mini-trial possibilities with 
any other company which follows the same policy. Over 200 
companies have adopted a policy which commits them to explor- 
ing some form of alternative dispute resolution, including 
possibly a mini-trial, and have signed policy statements to 
that effect. 

2. Evaluating a case for Mini-Trial Suitability 
a) Who should do it ? — In order to increase the 
use of mini-trials, a special mechanism should be devised for 
examining the suitability of a case for ADR both at law firms 
and in large corporations. If the dispute has not reached 
litigation, the review should be done in-house by an attorney 
or committee of attorneys in conjunction with the key busi- 
nessmen overseeing the commercial relationship with the other 
party. If possible, the inside attorney should, where possi- 
ble, be someone with prior experience in mini-trials. ^4 



44. One of the inside attorneys interviewed for the ABA 
Survey indicated that as a result of the success of a mini- 
trial in which he was involved, his company instituted a 
policy whereby all cases involving damages in excess of 

(footnote continued) 



50 



305 



If a claim has already been filed in court, and the 
matter is in the hands of retained counsel, the retained 
attorney (s) should perform the same kind of review before 
pursuing the litigation. ^5 if after such a review it is 
decided that the case may be suitable for a mini-trial but 
not until a later time, some mechanism for subsequent review 
should be developed. Another method of evaluation, whether 
the case is in the hands of inside or outside counsel, is to 
consult an organization which sponsors alternate dispute 
resolution, such as Endispute or the Center for Public Re- 
sources. 

b) What should the review entail ? Any review for 
mini-trial suitability should consider the following: 

(i) The extent to which the case lends it- 
self to summary judgment; 



$50,000 are now reviewed for suitability for resolution by 
mini-trial. 

45. One large law firm in Chicago has established a Negoti- 
ation-Dispute Resolution Department which explores mini-trial 
and other options with the firm's litigators. Another law 
firm has set up a firm-wide policy of discussing the possible 
use of mini-trials with its clients. This firm has also 
assigned someone to be an ADR specialist to monitor new 
developments in the field and make recommendations regarding 
neutral advisors. See Fine, Mini-Trial Workbook , supra at 
11-12. 



51 



306 



I 



(ii) The importance of maintaining a commer- 
cial relationship with the other party (if such a relation- 
ship exists) ; 

(iii) The extent of the costs to be saved by 
use of the mini-trial; 

(iv) The potential harm which might arise if 
information disclosed at the mini-trial is later obtained by 
third parties; 

(V) The probability (if it can be deter- 
mined) of reaching agreement with the other party as to the 
form, the neutral expert or other aspects of the mini-trial 
process. 



52 



307 



I 



2. BACKGROUND ON DISPUTE RESOLUTION MECHANISMS 
C. Arbitration 



309 



POINTS ON A CONTINUUM: 
DISPUTE IBSOLUTION PIOCBDUIBS AND THE ADMINISTRATIVE PROCESS 



PhiUp J. Barter 
June 5, ItSt* 



lliia report was prepared for the Adainistrative Conference of the United 
States. The views expressed are the author's alone and do not necessarily reflect 
those of the Conference, its Committees, or staff. Portions of the report were 
revised prior to publication to reflect subsequent developments in the case law. 



310 



m 

ADMINISTaATIYE AEBrT2LATI0N 

Arbitration is a powerful, widely used dispute resolution technique. For 
example, the American Arbitration Association has over 60,000 arbitrators on its 
rosters'*"* and more than 45,000 matters are referred to it annually for resolu- 
tion. "^S Its use has been endorsed and supported by the U.S. Arbitration Acf^^ 
which directs courts to enforce arbitration agreements and their resulting awards. 
The Uniform Arbitration Act, which forms the basis for legislation in more than 
half the states, establishes a similar provision for state law. Court annexed 
arbitration is growing in popularity and currently at least 16 states employ some 
sort of arbitration program as an adjunct to the courts. ^"^ 

Because arbitration results In a decision that is Imposed on the parties, its 
use is particularly appropriate for resolving "distributional" disputes in which a 
better bargain for one party means less for the other. "^^ Reaching an agreement 
through direct negotiation is particularly difficult in those situations. Arbitration 
frequently serves as a stimulus to settle, however, since parties are forced to 
prepare their cases for presentation to the arbitrator, and they will also have co 
discount the potential of an adverse decision. Hence, like preparing for trial, the 



42. Goldberg, Green, and Sander, supra note 9, at 13. 

43. Galanter, Reading the Landscape of Disputes: What We Know and Don't 
Know (and Think We Know) About our Allegedly Contentious and Litigious 

^ Society , 31 UCLA L. Rev. 4 (1983J. 

44. Telephone Interview with Irene Conway, American Arbitration Association. 

45. Telephone Interview with Earl Baderschneider, American Arbitration Association. 

46. 9 U.S.C. § 1 et aeq. 

47. Dispute Resolution Forum (Aug. 1985) at 2. 

•<S. Schelling, The Strategy of Conritct, (i960) at 21. 



311 



potential of an arbitral award will Itself change the parties' BATNA. Similarly, 
the parties can agree to submit their dispute to arbitration but not be bound by 
the arbitrator's decision. In that case, the award will serve as the basis for 
further negotiation. 

Toluntary versuB Mandatory. 

There are essentially three types of arbitration and, since the relationship 
between the parties and the process itself may vary one from another. It is 
important to keep the distinctions in mind. 

The first two types are voluntary, in which the parties agree to submit the 
dispute to arbitration. In the first, the agreement is made b«fore any dispute 
arises. The agreement will typically be made in a contract which provides that 
any dispute arising under it will be submitted to arbitration. The provisions of 
the arbitration may then be set out. The second form is where the parties agree 
to submit a dispute that has arisen to arbitration instead of using some other 
process, such as litigation, for resolving it."*^ Although the two are different for 
some purposes, for the most part they are similar in their effect on the nature of 
the arbitration process. One major difference, however, is that a party that 
entered into a pre-dispute agreement to arbitration may change its mind once the 
dispute arises and seek to use some other process once confronted with the actual 
prospect of an arbitration. ^^ Under such a situation, the parties may not be fully 
cooperative with each other in designing a system, and the coercion of the courts 
in enforcing an agreement to arbitrate may be needed. 

The third type is where the process is imposed on the parties: it is the 
only forum available for resolving the matter, at least in the first instance. 
Mandatory court annexed arbitration is such an example. In these cases, the 
parties are generally not as free, if indeed at all, to define the process that will 
be used. 



Nature of Arbitration. 

Arbitration has no set, definite process, and indeed that is one of its main 
attractions. It is an inherently flexible procedure. Common threads run through 
most arbitration programs in the private sector, however: 

Private Neutral. A private individual serves as the arbitrator. That is, the 
arbitrator generally does not serve in any official, governmental role, although 



49. There is a perception among some who are familiar with corporate dispute 
resolution that the vast majority of arbitrations are pursuant to pre-dispute 
agreements. Parties appear to be much more reluctant to submit an existing 
dispute to arbitration, but rather tend to favor litigation instead. Testimony 
of Michael F. Hollering, General Counsel of American Arbitration, at ACUS 
Hearings on Agency Use of Alternative Dispute Resolution by Administrative 
Agencies, May 2, 1986. Conversation with Jonathan Marks, President, EnDis- 
pute, Inc. 

50. See, e.g., Mitsubishi Motors Corp. v. Soler Chrysler- Plymouth, 105 S.Ct. 3346 
(1985); Hergel and Salpeter, Alternative Dispute Resolution May Have Limits, 
Legal Times (Dec. 23/30 1985) at 9. 



312 



there is nothing to prevent the arbitrator from being a government official absent 
any conflict of interest. 

Parties Choose Arbitrator. The parties are usually able to select the 
arbitrator. This enables them to choose someone in whom they have confidence. 
In some instances it is important that they can select someone who has technical 
expertise in the subject matter of the dispute. That enables the parties to get 
right to the merits of the dispute, as opposed to having to educate a generalist 
judge with sufficient background so the matter can be put in perspective. It also 
enables the arbitrator to exercise a professional judgment based on experience and 
technical insight instead of solely on a "record" generated by the parties. 

The parties themselves may identify an appropriate person or may select 
from a list tendered to them by an organization such as the American Arbitration 
Association. That choice may result from the parties' ranking those on the list 
and the person with the highest rank being selected, or each party may be 
permitted to strike a name, so that anyone not stricken could serve. If the 
parties are not permitted to choose, as is customary in the court annexed 
arbitration programs, a panel of three arbitrators often serves and a decision is 
made by majority vote. The arbitration in such programs is customarily nonbind- 
ing. 

Parties Can Select the Norm. The parties can decide what standard the 
arbitrator will apply. It may be the law of a particular jurisdiction, the rules of 
some organization, or the ethos of the milieu in which the dispute arose. The 
norm may also be, and frequently is, the arbitrator's "own brand of justice. "51 If 
the arbitration program is imposed on the parties, the arbitrator will customarily 
apply the prevailing law or other established norm of the organization imposing 
the requirement. 

Flexible Procedure . Since arbitration is a private dispute resolution process, 
the parties themselves can design its procedures. They can range from a virtually 
total emulation of a court process to the most informal and ad hoc. In some 
instances, full discovery is permitted and enforced on pain of default. In other 
cases major documents or other evidence on which a party will rely, are ex- 
changed prior to hearing and in others nothing happens before the hearing. 
Organizations such as the AAA and the National Academy of Conciliators publish 
rules that are designed to govern the arbitration proceedings in particular sub- 
stantive areas;52 they can serve as the "default" rules that will apply unless 
modified by agreement of the parties. Because it is not a public process, the 
proceedings and the result can be kept private and confidential. 

The common denominator in the process is that, unless they settle, 5*^ the 

51. Jones, His Own Brand of Industrial Justice; The Stalking Horse of Judicial 
ReviewTf Labor Arbitration , 30 UCLA L. Rev. 881 (1983). 

52. See, PBGC, FIFRA in App. II. 

53. It appears from preliminary research that many fewer cases that are 
submitted to arbitration settle as compared to those that go to trial. 
Whereas many do settle on the eve of the hearing, perhaps only half as 
many do so as are settled prior to a trial. This is perhaps surprising, and 
certainly something that needs to be borne in mind when considering 
institutionalizing arbitration on a broad scale. 



313 



parties submit evidence and argument to the arbitrator who makes the decision. 
As a result of the flexible procedure and the fact that the parties can select the 
arbitrator, the process can be conducted quite expeditiously should they wish, in 
terms of the time from when the dispute arises to the hearing, the length of the 
hearing itself, and the time from the close of the hearing to the decision. The 
parties can determine the trade off between the formality they desire and the 
need for expedition. 

While certainly one of the hallmarks and putative benefits of arbitration is 
its reduced transactions cost in terms of time and resources, that is not always 
the case. In some Instances the arbitration will look for all the world precisely 
like a trial with a full complement of discovery, sworn witnesses, briefs, and so 
on. 54 Even then, the process may still be more expeditious than a court since 
presumably the hearing can be scheduled more rapidly than a Judicial calendar 
would usually permit. But, before embracing arbitration as a means for resolving 
a dispute the nature of the arbitration process that is contemplated must also be 
considered to ensure that the desired benefits will actually materialize. 

Award. Typically, the decision in an arbitration is only an award: a final 
result, without elaboration on the facts found or the resolution of the individual 
issues presented. 55 Sometimes, of course, the decision is supported by a brief 
recitation of the facts and conclusions. 

Finality. One of the primary benefits attributed to traditional arbitration is 
its finality. Once an award is made it may be subjected to only limited additional 
review, in court or otherwise. 56 As one leading commentator has said: 



54. Letter of April 25, 1986 from Chief Administrative Law Judge Naham Litt to 
Charles Pou; testimony of Stanley Johnson at ACUS hearings, supra note 49. 

55. Goldberg, A Lawyer's Guide to Commercial Arbitration (1979) at 62, 66. 

56. The provision of the U.S. Arbitration Act pertaining to judicial review is 
extremely limited: 

In either of the following cases the United States court in and for the 
district wherein the award was made may make an order vacating the award 
upon the application of any party to the arbitration — 

(a) Where the award was procured by corruption, fraud, or 
undue means. 

(b) Where there was evident partiality or corruption in the 
arbitrators, or either of them. 

(c) Where the arbitrators were guilty of misconduct in refusing to 
postpone the hearing, upon sufficient cause shown, or in refusing 
to hear evidence pertinent and material to the controversy; or of 
any other misbehavior by which the rights of any party have been 
prejudiced. 

(d) Where the arbitrators exceeded their powers, or so imperfectly 
executed them that a mutual, final, and definite award upon the 
subject matter submitted was not made. 

(continued...) 



314 



The essence of the law of arbitration is that the scope of Judicial 
review of arbitration awards is very limited. When the arbitrators are 
properly selected, conduct an orderly hearing at which all parties have 
a fair chance to present their proofs and render an intelligible award 
within the scope of their authority, the courts will confirm and enforce 
the award. 5*^ 

Or, as another explained: 

The courts will not review the merits of the award and confirmation 
will not be denied, nor will vacatur be granted, upon a showing of 
error of law or fact on the part of the arbitrators. The court's inquiry 
is confined to determining whether the award falls within the authority 
of the arbitrators, whether in form it reflects the honest decision of 
the arbitrators and whether the hearing generally comported with 
accepted standards of due process. ^^ 

The relationship between courts and arbitration is itself a bit complex and 
evolving, 59 but its essence is that it is very limited. 

Quality Control. The quality control in arbitration — the reason people use 
it and have confidence in it — is the ability to choose the arbitrator and the 
minimal rules under which the process operates. They obtain in return, an 
expeditious decision^O that is within the bounds of acceptability. 

But, it is likely that the arbitration proceeding will be more abbreviated 
than a trial and that some of the Judicial procedures designed to ensure ac- 



56. (...continued) 

(e) Where an award is vacated and the time within which the 
agreement required the award to be made has not expired the 
court may, in its discretion, direct a rehearing by the arbitrators. 

9 U.S.C. 810. 

57. Goldberg, A Lawyers Guide to Arbitration (2d Ed, ALI 1983) p. 61. 

58. Kreindler, Arbitration Practice Under Federal Law , 18 Forum 348, 357 (1983). 
And see, 9 U.S.C. § 10, 11. 

59. Mitsubishi Motors Corp. v. Soler Chrysler- Plymouth Inc . 105 S. Ct. 3346 
(1985); ATAT Technologies, Inc. v. Communication Workers of America , 106 
S. Ct. 1415 (1986); Dean Witter Reynolds Inc. v. Byrd , 105 S. Ct. 1238 (1985). 

60. The often cited major advantages of arbitration is its expedition and its 
finality — it is a means of quickly resolving the dispute within the bounds 
of acceptability. Statement of Kay Mc Murray, Director, Federal Mediation 
and Conciliation Service, and Michael F. Hollering, General Counsel of 
American Arbitration Association at ACUS Hearings, supra note 49, Thus, if 
the procedures of an arbitration are unduly complex or if subjected to 
searching review, its primary value is lost and, absent other needs the 
matter would likely be better resolved in a full trial. 



315 



curacySl will not be used. It Is, therefore, perhaps inappropriate to expect that 
arbitration and trials would reach the same result in every case. In some 
instances arbitration may be viewed as the more accurate because of its flexible 
nature and its ability to draw on technical expertise. In other Instances, the 
quality control procedures of the courts would be expected to reach a more 
"accurate" resolution. The question then becomes how much of a spread between 
the two is acceptable and at what cost.*^ 



62 



Benefits/Uses. To summarize and extend, arbitration is a particularly 
attractive means of dispute resolution when one or more of the following factors 
are present:^ 



.63 



• Time or transactions costs are more important than the "accuracy" of 
any one decision. ^^ 

• No decision is of critical importance to any party. ^5 

• Technical expertise is important for the decision maker. 

• The parties want to choose the basis of the decision, especially if it is 
to be different from the law that would be applied in a judicial 
proceeding. 

• The parties desire privacy. 

Drawbacks. Arbitration is generally not particularly suited where: 



61. E.g. enforced discovery; findings of fact and conclusions of law; subpoena of 
witnesses; appeals. 

62. Many people clearly have a knee jerk reaction to arbitration as simply a 
sophisticated way to "split the difference" between the parties. That is, 
these people seem to feel impulsively that the arbitrator will not make an 
honest effort to apply the designated norms to the facts. Similar allegations 
can, and frequently are, much of virtually any decisional process. It seems a 
particularly unfortunate bias with respect to arbitration, however. In the 
abstract, if the parties are careful in selecting the arbitrator, the problem 
should not arise. More empirically, however, parties familiar with arbitration 
generally find it a satisfying way of resolving disputes with integrity. 

63. Paths to Justice , supra note 24, at 34; Goldberg, Green, and Sanders, supra 
note 9, at 8-9. 

64. For example, in a commercial or construction dispute, it may be more 
important to reach some decision than ensuring that it is "accurate" in the 
sense of emulating the decision a court would reach. That is necessary so 
the parties can get on with business based on the decision. 

65. Arbitration is frequently used where many claims need to be resolved 
expeditiously, no one of which is of fundamental importance to the parties. 
The parties may in fact integrate a large number of individual claims. For 
example, a labor union and a company will be parties to an arbitration 
agreement to resolve a variety of separate disputes. Whatever the variation 
of the award, "on the average" they would not only be acceptable but 
preferable to a more intensive form of resolution. 



316 



• Uniform results are desired -- reaching similar results in similar cases. 

• The development of a "common law" or significant policy that will 
govern future decisions is importan* 

• Maintaining established norms or policies is important;^^ in these cases 
it is decided that the public policy expressed in established law 
outweighs the ability of the parties to alter it by selecting the norms 
or even the forum where the law will be applied. ^"^ 

• Public scrutiny of the process and the result is desired. 

• Strict "quality control" is important and cannot be'supplied by providing 
for the technical expertise of the arbiter. 

• The matter affects some who are not parties so that they will lack the 
ability to protect their interests in the outcome. 

Administrative Arbitration 

The putative benefits of arbitration are attractive indeed. Interestingly, some 
of the major reasons for the establishment of administrative programs and 
administrative, as opposed to judicial, adjudication was to tap many of these same 
virtues. For example, one early case, which exhibited a residual concern and 
discomfort with agencies, characterized their benefits: 

[T]he obvious purpose of the legislation [is] to furnish a 
prompt, continuous, expert and inexpensive method for 
dealing with a class of questions of fact which are peculiarly 
suited to examination and determination by an administrative 
agency specially assigned to that task. The object is to 
secure ... an immediate investigation and a sound practical 
judgment, and the efficacy of the plan depends upon the 
finality of the determinations of fact with respect to the 
circumstances, nature, extent, and consequences of the 
[issues presented]. 68 

The benefits of administrative decisions have been described more recently 



66. Wilco V. Swann , 346 U.S. 427 (1953); Alexander v. Gardener- Denver Co., 415 
U.S. 36 (1974) (Title VII claims should be heard de novo in Federal Court 
even after they have been heard In a grievance arbitration). Katsoris, The 
Arbitration of a Public Securities Dispute , 53 Fordham L. Rev. 279 (1984); 
Edwards, Alternative Dispute Resolution; Panacea or Anathema? , 99 Harv. L. 
Rev. 668 (1986); Fiss, Against Settlement, 93 Yale L. J. 1073 (1984); Schoen- 
brod, Limits and Dangers of Environmental Mediation; A Review Essay , 58 
N. Y. U.L.Rev. 1453 (1983). 

67. Paths to Justice , supra note 24» at 34. 

68. Crowell v. Benson, 285 U.S. 22 (1932). 



317 



as avoiding judicial delays, application of expertise, and their efficiency. 69 Thus, 
the reasons giving rise to the current interest in arbitration and other forms of 
dispute resolution are a resounding echo of the very basis for the establishment 
of administrative agencies. But now agencies themselves face crushing case- 
loads^O and are themselves accused of exhibiting problems similar to those of the 
courts for which they were to be the cure.*^! It is surely not surprising, 
therefore, that agencies,'^2 Congress, ^3 and private organizations'^'* are anxious to 
find new ways to address the difficulties. Since the non-Judicial forms of dispute 
resolution frequently fulfill the promise, their use in or adaptation to the 
administrative process is to be encouraged. 

Dispute resolution techniques can provide an entirely new range of tools for 
making administrative decisions or even alleviating the need for governmental 
decisions. ^5 Thus, for example, they could take the burden off an overworked 
adjudicatory process and provide better "justice" at the same time. They can also 
provide a means of participation far better than that supplied by the APA itself, 
even under judicial gloss adding requirements. 

Some problems that are addressed through command and control regulation 
can also be better addressed by establishing a dispute resolution mechanism to 
resolve individual disagreements in a far more personal, factual based means than 



69. Administrative agencies are both efficient and speedy; and ... [a]gencies 
provide modern government with the informality of action and decision 
making usually found in large private business enterprises. Mezines, Stein, 
and Gruff, Administrative Law (1983) at 1-13. 

70. For example, 20,000 cases were referred to the 27 Federal agencies that 
employed at least one full-time administrative law judge in 1978. An 
additional 196,428 cases were referred to the Social Security Administration 
during the same year. Administrative Conference of the United States 
Statistical Report for 1976-1978 of Federal Administrative Law Judge 
Hearings, (1980) at 33. 

71. For example, the average time from complaint to disposition of a black lung 
case was nearly 1-1/2 years in the period 1976-78; it was more than 2 years 
for Service Contracts Act cases; more than 4 years for a Maritime Ad- 
ministration case; 2 years for Investment Company Act cases. ACUS, Federal 
Administrative Law Judge Hearings (1980). To be sure, arbitration would not 
be appropriate for some of these cases, but the point is that delay, com- 
plexity, and mounds of paper have surrounded administrative trials. 

72. CFTC, MSPB 

73. Superfund, PBGC, FIFRA, MSPB. 

74. The arbitration provisions of FIFRA were enacted at the behest of private 
organizations apparently seeking an expeditious resolution of a disagreement 
over payment for the use of data used to register a pesticide. See text 
accompanying note 409. 

75. Just as one need not find fault with a hammer to advocate including a 
screwdriver and pliers in a tool kit, one need not dwell on the failures of 
trials to advocate the adoption of ADR techniques. Rather, the techniques 
are alternative means of making decisions that are better suited in some circumstances. 



318 



could result from a generally applicable requirement that may as a practical 
matter leave the individual in the same situation as before a rule was promul- 
gated. "^^ The agency may be in a favorable position to supervise the minimal 
requirements of the dispute resolution mechanism instead of issuing and then 
policing a regulation. That process may work to the benefit of all concerned. 

Tarieties of Administrative Arbitration 

The discussion that follows is based predominately on the case studies of 
administrative arbitration that are contained in Appendix II. The arbitration 
programs that were studied are those of the Federal Insecticide, Fungicide and 
Rodenticide Act (FIFRA);'^'^ the Multiemployer Pension Plan Amendments Act of 
1980^^ that is administered by the Pension Benefit Guaranty Corporation (PBGC): 
the reparations procedures of the Commodity Futures Trading Commission'^^ 
(CFTC); the Comprehensive Environmental Response, Compensation and Liability 
Act^O tSuperfund); and the two programs of the Merit Systems Protection 
Board. ^^ While certain patterns through several of the programs, no two are just 
alike. Together, they span virtually the full range of possible characteristics of 
arbitration programs. Their attributes are summarized in the accompanying table, 
and the details are available in Appendix II. 



76. For an elaboration on this theme of the relationship between dispute 
resolution mechanisms (DRM) and regulation, see Barter, Dispute Resolution 
and Administrative Law; The History, Needs and Future of a Complex 
Relationship , 29 Vill. L. Rev. 1393, 1395-1400 (1984). 

77. 7 U.S.C. 8 136 et seq. 

78. . 29 U.S.C. 8 1381 et seq. 

79. 7 U.S.C. 8 18(b). 

80. 42 U.S.C. 8 9601 et seq. 

81. 5 U.S.C. 88 1101-8911. 



319 



TABULAE SIMIABY OF YAEIBTIES OF AHIINISTSATIYB ARBITRATION 



CSARACTSRISTIC 



FIFIA PBGC 



CFTC 



SUFSRF 



MSPB/ 
AAP 



MSPB/ 
VEAP 



Created by rule : 
or statute : 


Stat 


-7 


Stat 


: Rule 


-T 


Stat 


:Rule/ 
:8tat 


-T 

:Rule/ 
:stat 




Use: voluntary or : 
mandatory : 


Man 




Man 


: Vol 




Vol for 
prl.; 
man for 
gov't 


:Vol. 


:Vol. 




Arbitrator: agency : 
or private : 


Priv 




Priv 


: Agency 




Priv fr. 
agency 

list 


:Agency 


:Agency 




Arbitrator: app'ted: 
or parties choose : 


Choose 




Choose 


: App't 




Choose 


:App't 


: App't 




Nonns applied: : 
agency rule; stat ; : 
none specified : 


None 




Existing 
law 


: Same as 
: formal 




Rule 


:Sanie 

:as 

: formal 


:Same 

:as 

:formal 




Proceeding: : 
formal ; informal : 


For 




For 


. Inf 




For 


:Inf 


:Inf 




Record: full w/ tr. : 
limited; or full if: 
requested (vol). ; 


Vol 




Vol 


: Docs 




Full 


:Vol 


:Vol 




Decision: findings : 
of fact; conclus- : 
ions of law; award : 
only; full opinion : 


FP/CL 




Fact/ 
legal 
basis 


Award; 
brief 
dis., 
no find 




Full 


tSumnary 

:of 

:PF/CL 


:of 
:FF/CL 




Agency Review: full: 
limited; none : 


None 




None 


Limi ted 




None 


: Limi ted 


:Full 




Court Review: lim- : 
ited or arbitrary 4: 
capricious standard: 

i. 


Limited 
but 

Tucker 
Act act 


» • 


Unclear: . 
arb A 
cap or 
limited 
J 


None : 
"waived" : 


Arb at 
cap 


:Arb & 
:cap 


:Arb A 
:cap 





321 



IV 
THE LEGAL ISSUES OP ADMINISTRATIVE ARBITRATION 

Some limitations on the administrative use of arbitration need to be borne in 
mind when considering its use. Some of the problems are conceptual, ^^ some are 
8tatutory,83 and some are constitutional. 84 Some are practicah^S arbitration may 
be an Inappropriate tool to address the issues presented. Its benefits and 
drawbacks need to be considered when developing a program, and it should not be 
too quickly embraced without analyzing its utility in dealing with the specific 
matters to be resolved. With only a few exceptions, most of the obstacles can be 
overcome. Properly used, arbitration offers the administrative process the same 
promise it has provided for resolving private sector questions. 

Statutory Limitations when the Government is a Party. 

The Comptroller General has on several occasions, interpreted an obscure 
statutory provision with seemingly no relevance whatever^^ to prohibit agency use 
of arbitration in the absence of specific authorization. This section, enacted in 
1909, '"^ bars the use of public money for "the pay or expenses of a commission, 
council, board, or similar group, or a member of that group** unless that commis- 
sion or board is "authorized by law." The Comptroller General has consistently 
found this prohibition applicable to arbitration panels established to determine the 
rights of the United States. The Comptroller General has also viewed Congress's 
express authorization of agency, use of arbitration to indicate that agencies lack 
authority to submit disputes to arbitration in the absence of such authorization. 

The Attorney General reviewed the legislative history of this prohibition on 
the use of funds to pay unauthorized commissions soon after its enactment. The 
Attorney General described the breadth of this prohibition when considering the 
Secretary of War's appointment of a committee of architects to assist in over- 
seeing the development of the landscape surrounding Niagara Falls. The statute 
ascribing this duty to the Secretary did not expressly authorize such a commit- 
tee. Nevertheless, the Attorney General approved appointment of this committee, 
arguing that "public officers have not only the power expressly conferred upon 
them by law, but also possess, by necessary implication, such powers as are requi- 
site to enable them to discharge the duties devolved upon them.^^S The 
Attorney General determined that the prohibition on paying for unauthorized 
commissions was not intended to affect this implied authority. The legislative 
history shows that the bill as originally introduced would have prohibited all 
payments to all commissions or boards not "in specific terms authorized by 



82. See text at note 140. 

83. See text at note 86 et seq. 

84. See text at note 106 et seq. 

85. See text at note 66. 

86. 31 U.S.C. 81346. 

87. Mar. 4, 1909, Ch. 299 § 9, 35 Stat. §1027. 

88. 27 Op. Atty. Gen 432, 436 (June 26, 1909). 



322 



Congress." This language was later modified. The statute as enacted prohibits 
payment to boards not authorized by law. The Attorney General interpreted this 
legislative history to mean that commissions need not be authorized by specific 
statute but only have to be authorized generally. The opinion states "it would be 
sufficient if [commissions] authorized in a general way by law. "89 Thus, the 
Attorney General found that the Secretary of War was authorized by Implication 
to appoint a committee of landscape architects to assist him in performing his 
duties of administration over Niagara Falls. 

The Comptroller General adopted the Attorney General's analysis when he 
approved the payments made to the committee of landscape architects involved in 
the administration of Niagara Falls. ^0 The Comptroller General reaffirmed this 
conclusion when it authorized the payments to a board of experts appointed by 
the Secretary of Interior to assist in administration of Indian schools. The 
Comptroller General stated, "If a board of experts is necessary to accomplish the 
purposes indicated, the employment of the members thereof would be authorized 
under the provisions of this appropriation. Such a board would be authorized by 
law within the meaning of the act of March 4, 1909. "^1 

Despite these initial opinions, the Comptroller General soon began to read 
this prohibition more restrictively. In 1914, he refused to authorize the use of 
public funds to pay for the services of a commission which devoted itself to a 
matter it was not authorized by law to consider. The Mexican Border Commission 
had been authorized to negotiate boundary disputes. The comptroller determined 
that this Commission could not be paid for its work in negotiating the United 
States' and Mexico's rights to the use of water from the Rio Grande. 92 The 

Comptroller General also read the prohibition to bar payments to boards which 
were not clearly authorized by law. In 1925, the Comptroller General barred pay- 
ment for a board of consulting engineers employed to assist in construction of the 
Coolidge Dam. The statute authorized payment for individual consultants but did 
not explicitly authorize the appointment of a board of consultants. 93 jn another 
case, the Comptroller General determined that the Navy could not pay its share of 
the cost for arbitration of a contract dispute with a manufacturer because such a 
board was not authorized by law. 94 

In 1928, the Comptroller General applied the prohibition to an agency's 
submission to an arbitration panel. In reviewing a proposed lease between the 
government and a private company, the Comptroller General determined that the 
government could not accept a clause agreeing to arbitrate all disputes concerning 
the condition of the leased property at the end of the lease term. The Com- 
ptroller General rejected the arbitration clause for two reasons. First, he argued 



89. 27 Op. Atty. Gen at 437. 

90. 16 Comp. Dec. 282 (Nov. 2, 1909). 

91. 16 Comp. Dec. 422, 424 (Jan. 10, 1910). 

92. 20 Comp Dec. 643, March 18, 1914. 

93. 5 Comp. Gen. 231 (August 21, 1925). 

94. 5 Comp. Gen. 417 (Dec. 9, 1925). 



323 



that the act of March 4, 1909^^ prohibited the payment of boards not authorized 
by law, stating simply that the arbitration board called for under the lease was 
unauthorized. Second, the Comptroller General argued that the government's 
provision for contract dispute resolution precluded resort to an alternate forum. 
The Comptroller General argued that the existence of established procedures for 
resolving disputes with the government precluded the use of arbitration. The 
Comptroller General states, "provision having been made by law for the adjust- 
ment of claims that may arise under government contracts, there is no power or 
authority in any administrative or contracting officer of the Government, by 
means of a provision in a contract, to establish or provide for a different 
procedure for the adjustment of such claims. "^^ These two views were 

subsequently relied upon to invalidate arbitration clauses in two additional 
contracts. 97 

The Comptroller General subsequently returned to the broad view of the 
term authorized by law reflected in earlier opinions. In 1942^8 he quoted 
extensively from the Attorney General's 1909 opinion. ^9 Criticizing subsequent 
opinions, the opinion held "Subsequent decisions applying a more strict rule on 
the basis that the creation of commissions, boards, and similar bodies must be 
specifically authorized by statute may not have taken cognizance of the earlier 
history of the matter. "1^0 Concluding that the question of authorization did not 
bar government agreement to the inclusion of an arbitration clause in a lease of 
government property, the Comptroller General turned to the more general question 
of whether the existence of a prescribed method for resolving disputes against the 
government precluded agencies from adopting alternative means for resolving 
disputes. 

The Comptroller General determined that there is no bar to the use of a board 
or panel to determine the factual question of reasonable value. Under the terms 
of the lease at issue, the government could only gain from the arbitration award 
as the lease provided that the value of the property could not be fixed at any 
rate less favorable than the original terms of the lease. The Comptroller General 
approved the inclusion of the arbitration clause under these conditions since the 
government could not lose under the process and the arbitrators were not 
deciding any questions concerning the legal liability of the government; These 
arbitrators were merely making a factual determination of the value of certain 
rental space. 

The Comptroller General has refused to extend its acceptance of the use of 
arbitration beyond the function of fact finding or appraising value. In 1953, he 
decided the Navy lacked authority to submit to arbitration as prescribed in a 
contract it had signed with a Swedfsh company. After reviewing several nine- 
teenth century court of claims decisions, the Comptroller General decided, "The 



95. 35 Stat. 1027. 

96. 7 Comp. Gen 541, 542 (March 3, 1928). 

97. 8 Comp. Gen. 96 (Aug. 28, 1928) and 19 Comp. Gen 700 (Feb. 3, 1940). 

98. 22 Comp. Gen 140 (July 10, 1942). 

99. Supra, note 90. 

100. 22 Comp. Gen. 140, 143. 



324 



conclusion seems warranted that in tJie absence of statutory authorization, either 
express or implied, officers of the Government have no authority to submit or to 
agree to submit to arbitration, claims which they themselves would have no au- 
thority to settle and pay. "101 He also concluded that Congress's express 
authorization of arbitration in some statutes, indicates that agencies generally 
lack the authority to submit to arbitration. The Comptroller General states, "The 
action of the Congress,... in authorizing the heads of executive departments to 
arbitrate certain specific and well defined matters might well, indicate ... that the 
executive branch has no general or inherent power to submit claims against the 
United States to Arbitration. "102 jhg Comptroller General's opinion of agency 
use of arbitration remains unchanged. The opinion is not based upon any statute, 
but is an inference drawn by the Comptroller General from Congress's explicit 
authorization of arbitration in several statutes. 

The Comptroller General's most recent opinion concerning agency use of 
arbitration dates from 1978.103 The Federal Trade Commission requested an 
opinion concerning the agency's decision to resolve a factual dispute with a 
contractor through binding arbitration. The Comptroller General held that such 
substitution for prescribed dispute resolution procedures would be improper, 
although an arbitrator who is in fact an appraiser is a desirable adjunct to the 
normal dispute resolution procedures. The Comptroller General also reiterated his 
position that he was approving only arbitration's use to determine the fact of 
reasonable value in situations in which the arbitrator did not impose any 
obligation on the government or leave questions of legal liability for the ar- 
bitrator's determination. The Comptroller General approved of the FTC's use of 
arbitration "to render a determination as to the reasonable value of work per- 
formed by the defaulted contractor ... so long as the prescribed disputes proce- 
dure and provisions for judicial review incorporated therein are not displaced,"104 

Thus, as a result of this line of holdings, the government cannot be bound 
by an agency's arbitration program unless it is specifically authorized by statute 
or is limited to factfinding. Absent these, an agency's arbitration must be 
nonbinding and hence the functional equivalent of a minitrial. 

Given the erratic interpretation of the statute read to ban the appointment 
of arbitrators unless specifically authorized and the relatively this justification of 
a ban based on Congress's inclusion of specific provisions for arbitration, it seems 
appropriate for Congress to clarify this matter. In particular, an executive 
branch official should be allowed to use arbitration for making decisions within 
his or her authority if they believe that would be a beneficial means of doing so. 
Such authority would not, of course, pre-empt the existing authority of the 
Comptroller General and the General Accounting Office for "determin[ing] whether 
payments of public funds are warranted by applicable law and available appropria- 



101. 32 Comp. Gen 333, 336 (Jan. 27, 1953). 

102. jd. 

103. B-191484, May 11, 1978. 

104. Id. at 3. 



325 



tions."!^^ Thus, an arbitral award would still be subject to a determination by 
GAO that its terms can be lawfully met. 



Article m 

The courts were clearly jealous of their prerogatives during the development 
of administrative law, and announced the need for judicial, not administrative, 
resolution of important matters, especially facts. ^^^ The need was raised to the 
Constitutional level. With the growth of the administrative state, the acceptance 
of decisions made by agencies and a limited form of judicial review -- to ensure 
that the determinations are based on substantial evidence — also grew. The early 
doctrines gradually died.^^^ Indeed, agency decisions became sufficiently accepted 
that few thought much about the old tension or that only Article III courts could 
hear and resolve some types of issues. Interestingly, the limitation on the use of 
entities other than courts to resolve matters has been rekindled recently. While 
it does not affect most administrative arbitration, the issue has arisen and it does 
define the outer boundaries of what can be done in it. The new requirements 
must clearly be taken into account when considering whether to develop a new 
administrative program. 

Northern Pipeline Co. v. Marathon Pipe Line Co ^Q^ held that the Bankruptcy 
Act of 1978 wrongfully delegated federal judicial power to individuals who are not 
Federal judges. Judges appointed under the Bankruptcy Act are not guaranteed 
the safeguards of life tenure and irreduclbility of salary deemed essential to 
Judges appointed under Article III. The arbitration program of the Federal 
Insecticide, Fungicide and Rodenticide Act (FIFRA) was challenged on the similar 
grounds that the use of an arbitrator denied the parties their right to have the 
issue resolved by an Article III court. ^^^ The Court upheld the constitutionality 
of private arbitrators determining the amount of compensation a second or 
"me-too" pesticide registrant must pay to a prior registrant when EPA uses data 
submitted by the first registrant in support of the second pesticide registration on 
the grounds that it is a "public dispute." 

The Court acknowledged Congress's discretion over the adjudication of 
public rights over one hundred years ago: 

There are matters, involving public rights, which may be 
preserved in such form that the judicial power is capable of 
acting on them, and which are susceptible of judicial 
determination, but which Congress may or may not bring 
within the cognizance of the courts of the United States, as 



105. Steadman, Schwartz, and Jacoby, Litigation with the Federal Government 
(2nd Ed. 1983) at 205. 

106. Ohio Valley Water Co. v. Ben Avon Borough , 253 U.S. 287 (1920); Crowell v. 
Benson , 285 U.S. 22 (1932). 

107. Davis, Administrative Law and Government at 69; Estep v. United States, 327 
U.S. 114, 142 (1946). 

108. 458 U.S. 50 (1982). 

109. Thomas v. Union Carbide Agricultural Products, 105 S. Ct. 3325 (1985). 



326 



it may deem proper, HO 

FIFRA illustrates that the public rights doctrine extends to disputes between 
private parties. FIFRA empowers arbitrators, who are not Article III judges, to 
adjudicate disputes between pesticide registrants over amounts of compensation 
due as a result of EPA's use of previously submitted data. The Court notes that 
this right to compensation is statutorily based and that pesticide registrants lose 
any claim to compensation based upon state property law when they submit the 
data to EPA with knowledge of FIFRA's data use provision. m 

Although this right to compensation concerns private parties, the Court 
determined that this right carries many attributes of a public right since Congress 
created the right as part of a comprehensive regulatory scheme governing 
pesticide registration intended to safeguard the public health. The Court justified 
Congress's delegation to arbitrators by noting it could have granted EPA the 
power to decide the value or compensation due but instead chose to vest ar- 
bitrators with this authority. The use of this alternative does not raise this dele- 
gation of Congress's Article I legislative authority to the level of encroaching 
upon judicial power so as to violate Article III. 

FIFRA does provide a role for the judiciary in its regulatory framework, 
however. It authorizes judicial review of an arbitrator's decision in cases of 
fraud, misconduct and misrepresentation. In Thomas, the Court found that this 
scope of judicial review satisfies the need to ensure an "appropriate exercise of 
the judicial function" because it provides judicial protection against "arbitrators 
who abuse or exceed their powers or willfully misconstrue their mandate under 
governing law. "112 

The Court summarized the scope of Article III limitation upon the delegation 
of decisionmaking power: 

Congress, acting for a valid legislative purpose pursuant to 
its constitutional powers under Article I, may create a 
seemingly "private" right that is so closely integrated into a 
public regulatory scheme as to be a matter appropriate for 
agency resolution with limited involvement by the Article III 
judiciary. To hold otherwise would be to erect a rigid and 
formalistic restraint on the ability of Congress to adopt 
innovative measures such as negotiation and arbitration with 
respect to rights created by a regulatory scheme. H^ 

Thus, the public rights doctrine Is a broad, flexible doctrine which author- 
izes the delegation of quasi-judicial, decisionmaking authority to non- Article III 
judges when Congress adopts innovative approaches to the resolution of disputes 
as part of a regulatory scheme. 

The latest explication of the nature of issues that agencies, and hence 



110. Murray's Lessee v. Hoboken Land , 18 How. 272, 284 (1856). 

111. 105 S. Ct. at 3335, citing Ruckelshaus v. Monsanto , 104 S. Ct. 2862 (1984). 

112. 105 S. Ct. at 3339. 

113. 105 S. Ct. at 3340. 



327 



administrative arbitration, can hear came as recently as the end of last term. 
The D.C. Circuit held the Commodity Futures Trading Commission could not 
resolve a counterclaim involving state law in a proceeding arising out of the same 
transaction that was clearly within its jurisdiction because doing so would 
transcend Article III limitations. ^^4 jf^Q Supreme Court reversed, pointing out 
that Article III has two purposes: one is to protect an Independent judiciary 
from encroachment by other fora, and the second is to afford parties the right to 
have their controversies heard by Article III judges. 

As to the first, the Court found the important factors to be considered are 

the extent to which the "essential attributes of judicial 
power" are reserved to Article III courts, and, conversely, 
the extent to which the non-Article III forum exercises the 
range of jurisdiction and powers normally vested only in 
Article III courts, the origins and importance of the right to 
be adjudicated, and the concerns that drove Congress to 
depart from the requirements of Article III.^^^ 

The Court sustained the agency's resolution of the state law claim on the 
ground that the courts would still be called upon to enforce the order; the legal 
rulings would be subject to de novo review; the range of issues presented is 
narrow; and, the scheme did not oust the courts of jurisdiction since the parties 
could still proceed there instead of before the agency. The Court found, there- 
fore, that the program was not a threat to separation of powers. 

With respect to whether the parties could "waive" their rights to an Article 
III court, the Court held in reviewing the CPTC program that 

as a personal right. Article Ill's guarantee of an impartial 
and independent federal adjudication is subject to waiver, 
just as are other personal constitutional rights that dictate 
the procedures by which civil and criminal matters must be 
tried. 116 

Thus, Article III does not appear to raise any limitations on the use of 
arbitration to resolve public disputes. Nor is it a limit for resolving private 
disputes so long as consent is freely given by the parties and the courts maintain 
at least some role in reviewing and enforcing the order. 

Article III could conceivably pose some restriction on the extent to which 
Congress could require mandatory arbitration as a way of resolving private 
disputes since the very limited judicial review could be regarded as an impermis- 
sible intrusion into the prerogatives of the judiciary. That courts are called upon 
to enforce the otherwise private award may not be sufficient basis of judicial 
involvement to protect this aspect of the separation of powers requirement. The 
Court's reasoning in Thomas, however, that the limited review of arbitral awards 



114. Schor V. Commodity Futures Trading Commission , 740 F.2d 1262 (D.C. Cir. 
1984), vacated , 105 S. Ct. 3325, reinstated , 770"F.2d 211 (D.C. Cir. 1985), 
rev'd , lOS S. Ct. 3245 (1986). 

115. W. at 3258. 

116. Id. at 3256. 



328 



is sufficient to provide the requisite level of judicial protection necessary to meet 
the standards of Article III would seem to apply with equal vigor to private 
actions. Thus, even the mandatory arbitration of private disputes appears to meet 
the standard develop in Schor . 

Congress has authorized the use of arbitration as a means for adjudicating 
disputes involving public rights in a number of statutes. For example, the 
Randolph- Shepard Vending Stand Act^^^ grants a preference to blind vending 
stand operators seeking sites on Federal property. Disputes concerning this 
program may be submitted to an arbitration panel convened by the Secretary of 
Education upon request of the individual, the state agency administering the 
program or by the Secretary. The arbitration panel's award is reviewable in the 
Federal District Court as if it were final agency action under the Administrative 
Procedure Act. 

Other instances of Congressional authorization of arbitration Include CERCLA 
or Superfund,^^® the Flood Insurance program, ^^9 Department of Defense design 
bid competitions, 120 patent interference cases^^l and the largest federal sector 
use of arbitration, the Civil Service Reform Act's requirement of arbitration of 
employee grievances. ^22 

Administrative arbitration programs have been assailed on several additional 
constitutional grounds. That lower courts have sustained some of the challenges 
indicates their potential seriousness. Properly designed and used, however, 
administrative arbitration fits comfortably within the constitutional framework — 
at least as much as agencies themselves. 



Article Ik Requirement for Szecutlve Declaiona 

Some issues may be so intertwined with government policy that they cannot 
be decided by a private arbitrator. Buckley v. Valeo ^^^ held that the "perfor- 
mance of a significant governmental duty exercised pursuant to a public law''124 
can only be discharged by an Officer of the United States appointed in accor- 
dance with the Appointments Clause of the Constitution. 125 T^e argument has 
been raised as to whether a private arbitrator could be authorized to make a 



117. 20 U.S.C. Sec. 107. See discussion infra at note 132. 

118. 42 U.S.C. Sec. 9612(b)(4)(G). 

119. 42 U.S.C. 4083. 

120. 10 U.S.C. 277(e). 

121. 35 U.S.C. §135(d). An advance notice of proposed rulemaking to establish 
procedures for the arbitrations was published at 50 Fed. Reg. 2294 (1985). 

122. See 5 U.S.C. 4303 and 7512. 

123. 424 U.S. 1 (1976). 

124. ]d. at 140-141. 

125. Article II, Section 2, Clause 2. 



329 



binding decision in a matter in which an agency must make a final, binding deci- 
sion, such as in rulemaking or revoking a permit. ^26 Even in the case of 
revoking a permit, however, it would not seem inappropriate if the parties -- the 
agency, the permittee, and the interested interveners -- agreed to resolve a 
contested issue by submitting it to arbitration. 127 Doing so would seem analogous 
to stipulating a factual premise of the action. The ability of the arbitral decision 
to withstand challenge from a non-participating third party would likewise appear 
to be similar to the ability of a disgruntled third party to challenge a stipulation. 
In both instances, the decision is made by the government official, albeit in the 
one he has agreed to be bound by the arbitrator's decision. The officer or 
government employee presumably will have made that decision on the ground that 
it is in the government's overall interest to arbitrate the claim as opposed to 
consume resources to chase the issue through a more elaborate process. 

The real question would seem to concern the extent to which the non- 
executive branch official is called upon to make policy determinations. As the 
quote from Buckley indicates, it is the siKiiificant decisions that must be made by 
government employees, not all decisions. Thus, the restriction would appear to 
bar the arbitrator's deciding major policy questions, not the factual basis of such 
a decision or a mixed question of law and fact in which the norms are already 
relatively well developed. Not only are these areas constitutionally doubtful, they 
are the very areas where the utility of arbitration is limited in the first instance. 
The Article II limits, therefore, do not appear to be a practical concern. 

Delegation to Private Parties 

A closely related issue is whether there may be limitations on the ability of 
the government to delegate powers to a private individual or institution. As the 
discussion above makes clear, the use of private arbitrators to make decisions 
closely affiliated with the government has been upheld on several occasions. ^28 
Although the law on this issue is far from clear,129 there are undoubtedly some 
limits. Thus, the more central the decision is to an issue that only the 



126. Memorandum of April 24, 1986 for Stephen J. Markman, Assistant Attorney 
General, Office of Legal Policy, from Samuel A. Alito, Jr., Dep. Ass't 
Attorney Gen., Office of Legal Counsel, Administrative Conference Recom- 
mendations on Federal Agencies' Use of Alternative Dispute Resolution 
Techniques. 

127. Indeed, EPA is considering doing just that with respect to the permitting of 
hazardous waste facilities. Robinson, U.S. Environmental Protection Agency 
Institutes Alternative Dispute Resolution in its Enforcement Program , 18 Dis. 
Res. News 6 (ABA Cmte. on Dis. Res. 1986). Memorandum of December 2, 
1986 to Ass't Administrators, Regional Administrators, Enforcement Policy 
Work Group, Draft Guidance on the Use of Alternative Dispute Resolution 
Techniques in Enforcement Cases . The draft recognizes the statutory 
limitations, however, and limits the use of binding arbitration to factual 
situations. M. at 4. 

128. Thomas v. Union Carbide Agr. Products Co., 105 U.S. 3325 (1985); Schweiker 
v. McClure , 456 U.S. 188 (1982). 

129. OLC Memorandum, supra note 126, citing Davis, Administrative Law Treatise 
3.12 (2d Ed. 1978). 



330 



government can make, the more likely it is that an agency must be in a position 
to review the matter before it can be final. 

As in the discussion of the need for executive branch decisions, the extent 
to which this is a problem would seem to be directly correlated with the extent 
to which the arbitrator is called upon to make policy decisions, and that is 
precisely the area in which the utility of arbitration Is questionable. For 
virtually all areas in which arbitration may be attractive, therefore, it does not 
raise constitutional difficulties. 



Due Process 

The manner in which reimbursements under Medicare are determined has 
been criticized as denying participants due process. Part A of the program 
provides insurance coverage for the cost of institutional health services, while 
Part B is a voluntary supplementary insurance program covering a percentage of 
costs for other medical procedures. Both parts are administered by private 
insurance carriers. Under the programs, claims for payment or reimbursement are 
submitted to the carrier. If the request is denied, the beneficiary may request a 
reconsideration. HHS' Health Care Financing Administration decides the matter 
for Part A and a different employee of the carrier makes the decision as to Part 
B. Under Part A, only controversies involving more than $100 may be appealed to 
the Secretary and Judicial review is available only if the amount in dispute is 
$1,000 or more. Under Part B, the decision is final and non-reviewable. Thus, 
under Part B, a private "arbitrator" is assigned to decide the matter, and the 
decision is not subject to Judicial review. 

The use of a private individual to make decisions that are, to some degree 
or another, administrative decisions is certainly anomalous. The question would 
logically arise whether the types of decisions that are referred to the private 
arbitrators are such that they should be decided by government officials. The use 
of the private carriers to make the decisions in Medicare Part B was challenged 
as a denial of due process. The District Court agreed "insofar as the final, 
unappealable decision regarding claims disputes is made by carrier appointees 
...."130 In applying the test of Mathews v. Eldridge ,131 the court concluded that 
administrative law Judges must hear the appeals. The Supreme Court 
reversed. 132 n h^ld that the deciding employees did not have a conflict of 
interest since their salaries and any resulting claims are paid by the Government, 
not their employers. Moreover, the nature of the decision is determined by 
statute and regulation. Thus, the court found there is no reason to believe those 
making the decisions are not qualified to perform their tasks and hence that their 



130. Schweiker v. McClure. 503 F. Supp 409, 418 (N.D. Cal. 1980). 

131. 424 U.S. 319 (1976). In determining the nature of a hearing that is minimal- 
ly required by due process, the court is to balance the private interest 
affected by the official action; the risk of erroneous deprivation of such an 
interest through the procedures used; and the probable value of additional 
procedural safeguards; against the government's interest, including the 
function and expense of additional or substitute procedural safeguards. 

132. Schweiker v. McClure, 456 U.S. 188 (1982). 



331 



margin of error is any greater than that for administrative law judges. ^-^^ Thus, 
the court has approved private schemes at least to the extent they operate under 
procedures specified by the agency. 

The need for minimum procedural safeguards was stressed in a subsequent 
case^^"* involving the question as to whether an oral hearing must be held for 
claims for less than $100 or whether a paper hearing would be sufficient. The 
court laid down guidelines that must be followed if the oral argument was to be 
avoided, especially the adequacy of notice, access to the evidence on which the 
decision was made, and the ability to speak with someone who knows and 
understands the basis for the decision. 

A second answer to the seeming conflict between using private arbitrators 
for public decisions is that the decisions are not entirely public: While the 
decisions may implement an administrative program and bear an intimate connec- 
tion to it, the decisions are not those of the agency and are basically for the 
resolution of a controversy between private individuals and organizations. ^35 



Unconatitutional Taking 

FIFRA was also challenged that the arbitration program constituted an 
unconstitutional taking of private property in violation of the Fifth Amendment. 
The Court rejected the challenge in Ruckelshaus v. Monsanto . ^•^^ Monsanto 
alleged that EPA's use of its data for the benefit of another applicant's pesticide 
registration effected a taking of Monsanto's property without just compensa- 
tion. 137 The district court sustained the challenge. 138 The Supreme Court 
reversed, finding that while Monsanto and other data submitters may have a 
property interest in data submitted to EPA, these companies cannot allege that a 
taking occurs when EPA uses this data in a manner which was authorized at the 
time the data was submitted. 139 The Court noted, however, that under the 
statutory scheme in effect between 1972 and 1978 data submitters could have a 
legitimate claim that documents submitted under the designation "trade secrets'* 
between 1972 and 1978 were improperly taken when used for the benefit of other 
pesticide registration applicants. 1^*0 Such an allegation would depend upon the 
actual amount of compensation received in arbitration. The Court found that 



133. 456 U.S. at 200. 

134. Gray Panthers v. Schweiker, 716 F.2d 23 (D.C. Cir. 1983). 

135. This is not the case in some of the Superfund cases in which a claimant 
disputes the Administrator's denial of liability or the amount claimed from 
the fund, 

136. 104 S.Ct. 2862 (1984). 

137. 104 S. Ct. at 2871. 

138. Monsanto Co. v. Acting Administrator, United States Environmental Protec- 
tion Agency , 564 F. Supp. 552 (ED Mo. 1983). 

139. 104 S. Ct. at 2872-2877. 

140. 104 S. Ct. at 2877-2879. 



332 



Monsanto had not yet had any issue of compensation submitted to arbitration and 
thus no issue of taking had yet arisen. 1'*! 

The Court held, however, that any data submitter seeking to contest an 
arbitrator's compensation award retains the right to challenge the amount of 
compensation in the United States Court of Claims. 1^*2 The Court ruled that the 
Tucker Act offers a potential remedy to any data submitter whose data is used or 
taken by EPA for the benefit of another applicant. Thus, any data submitter who 
is dissatisfied with an arbitration decision may sue the United States in the Court 
of Claims under the taking clause on the ground that it did not receive just 
compensation for the use of its data. 



Standardless Delegation 

FIFRA has also been assailed as an unconstitutional delegation of legislative 
power because the statute is alleged to offer so little guidance as to the stan- 
dards an arbitrator should apply in administering the data compensation program. 

The Supreme Court did not address this issue in N!onsanto^'*3 because 
Monsanto's claim concerning the constitutionality of the arbitration scheme was 
not ripe for review since it had not been subject to any arbitration. In contrast, 
the district courtl^'* had found the arbitration provision arbitrary and vague. 
Similarly, the district judge in Union Carbide Agricultural Products v. Ruckel- 



141. 104 S. Ct. at 2878. 



142. 104 S. Ct at 2880-2882. The Tucker Act, 28 U. S.C. § 1491 provides that 
any individual who believes that the United States has taken his property 
may bring this claim for compensation before the United States Claims 
Court. The Tucker Act states: 

The United States Claims Court shall have jurisdiction to 
render judgment upon any claim against the United States 
founded either upon the Constitution, or any Act of Con- 
gress, or any regulation of an executive department, or upon 
any express or Implied contract with the United States or for 
liquidated or unliquidated damages in cases not sounding in 
tort. 

The Court held that in the absence of specific legislation addressing their 
interaction, the Tucker Act remedy and FIFRA's data compensation scheme 
must coexist. Thus, the Court interpreted FIFRA as "implementing an 
exhaustion requirement as a precondition to a Tucker Act claim. That is, 
FIFRA does not withdraw the possibility of a Tucker Act remedy, but merely 
requires that a claimant first seek satisfaction through the statutory 
procedure." 104 S. Ct. at 2881. 

143. 104 S. Ct. 2862 (1984). 

144. Monsanto v. Acting Administrator, United States Environmental Protection 
Agency , 564 F. Supp. 552 (ED Mo. 1983). 



333 



shaus^^S remarked that FIFRA represents a standardless delegation of power to 
arbitrators. 

The court In Sathon, Inc. v. American Arbitration Associatlon ^^^S refused to 
issue a declaratory judgment as to the standard an arbitrator must apply in 
determining the amount of compensation due. Sathon sought a declaratory 
Judgment to determine whether it must pay to an original data submitter a share 
of the cost of producing the data used or whether it must pay a share of the 
value of its use. The court sustained the vague criteria of "compensation," 
saying: 

It is up to Congress to say what standards are to be applied 
or to delegate this authority. There is nothing in the 
statute (or the regulations promulgated thereunder) relating 
to the standard to be applied in such proceedings or provid- 
ing for judicial intervention in such matters. l"*"^ 

Another court concurred that arbitrators under this scheme are not required 
to apply an particular allocation formula, and that the absence of a specific 
standard was not unconstitutionally impermissive as a denial of due process or 
excessively broad delegation of authority. ^^8 

Conclualom Properly Kzecuted Arbitration Programs are Conatitutional 

The courts which have interpreted the Multiemployer Pension Plan Amend- 
ments Act of 1980'sl49 (MPPAA) arbitration provisions thus far have been called 
upon to determine the Act's constitutionality and have not actually reviewed an 
arbitration decision under the Act. MPPAA has been upheld against assertions 
that its provisions violate standards of due process;^^^ deny employers access to 
an impartial tribunal;^^! commit a taking of property without Just compensa- 



145. 571 F. Supp. 117 (SD NY 1983), rev'd sub nom., Thomas v. Union Carbide 
Agricultural Products, 105 S. Ct. 3325 (1985). 

146. No. 83 Civ. 8019 (U.S. District Court N.D. 111., March 30, 1984) 20 ERC 2241. 

147. 20 ERC 2245, 

148. PPG Industries, Inc. v. Stauffer Chemical Co., 637 F. Supp. 8 (D.D.C. 1986). 

149. P.L. No. 96-364, 94 Stat. 1217, codified at 29 U.S.C. Sec. 1381 et seq. 

150. See, Pension Benefit Guaranty Corp v. R.A. Gray , 104 S.Ct. 2709(1984) 
(Court held constitutional MPPAA's retroactive imposition of withdrawal 
liability.) 

151. See discussion in text, Board of Trustees of the Western Conference of 
Teamsters Pension Trust Fund v. Thompson Building Materials, Inc , 749 F. 2d 
1396 (9th Cir. 1984); Washington Star Company v. International Typographical 
Union Negotiated Pension Plan , 729 F. 2d 1502 (D.C. Cir. 1984); Peick v. 
Pension Benefit Guaranty Corp. 724 F. 2d 1247 (7th Cir. 1983). 



334 



tion;i52 violate the Seventh Amendment's provision for trial by jury;153 and 
constitute a violation of Article III of the Constitution by vesting federal judicial 
power in arbitrators who are not federal Article III judges. 1^** 

Administrative arbitration programs have been attacked on a broad range of 
constitutional grounds. Thus far all the challenges have been rebuffed. It would 
therefore appear that such a program will pass constitutional muster and can de- 
cide any issue an agency can so long as they adhere to at least minimal proce- 
dures, avoid major policy matters, and are subjected to at least some judicial 
review — even the narrow standard of the Arbitration Act. 



152. Board of Trustees of the Western Conference of Teamsters Pension Trust 
Fund V. Thompson Building Materials, Inc ., 749 F. 2d 1396, 1406 (9th Clr. 
1984) (taking clause does not prohibit Congress from readjusting contractual 
relationships of private parties); accord, Peick v. Pension Benefit Guaranty 
Corp., 724 F. 2d 1247, 1274-1276 (7th Cir. 1983). 

153. Washington Star Company v. International Typographical Union Negotiated 
Pension Plan , 729 F. 2d 1502, 1511 (D.C. Cir. 1984); Peick v. Pension Benefit 
Guaranty Corp.. 724 F. 2d 1247, 1277 (7th Cir. 19831] 

154. Board of Trustees of the Western Conference of Teamsters Pension Trust 
Fund V. Thompson Building Materials, 749 F. 2d 1396, 1404-1406 (9th Cir. 
1984). 



335 



V 
HYBRID PROCESS 

As should be clear by now, several of the administrative arbitration programs 
are actually hybrids between administrative and private sector processes. 155 lyjgy 
typically are used to resolve issues that arise because of an administrative 
program and are administered at least in part by an agency, but they are not part 
of the agency itself. That is, the decision reached is not an agency order. The 
agency, however, is charged with defining the process to be followed. Sometimes, 
as in Superfund, the agency is a party, but in others, such as PBGC and FIFRA, 
It is not. It seems likely that prior to the interest in alternative means of 
dispute resolution the issues submitted to arbitration would have been resolved by 
the agency itself in some sort of trial type hearing. For example, prior to 
FIFRA's amendment, EPA made the determination as to how much compensation is 
due; now the arbitrator does.^^^ Since the programs are so intimately connected 
to the agency and implement part of an agency program, they have some of the 
attrlbutes^S? of agency action. Moreover, in some of the programs, the arbitra- 
tion is the only forum available for resolving the matter. It is therefore unlike 
voluntary arbitration and more like an administrative or Judicial hearing in which 
the process is imposed on the parties. Thus, administrative arbitration might 
sometimes be thought of in conceptual terms as similar to an administrative 
hearing. 



155. FIFRA, PBGC, Superfund. 

156. See discussion infra at note 404. 

157. E.g. judicial review for some, but not all of them. 



336 



But, these programs also have some of the attributes of private sector 
arbitration, such as a reduced record, a private arbitrator, the parties' having a 
role in choosing the person who will decide, and decisions required by rule to be 
reached far more quickly than is customary for administrative litigation. 

The administrative arbitration programs are, therefore, to a very real extent 
a hybrid, having both public and private characteristics. Sometimes the two 
collide. The difficulty is made more confusing by no two being alike. 



The Arbitrators. 

Arbitrators are basically selected in one of three ways in administrative 
arbitration programs, although a fourth way is clearly possible. The first is the 
private analog in which the parties participate in selecting the arbitrator. They 
may agree directly on an individual to serve as the arbitrator. Barring that, and 
the procedure contemplated in several of the programs, the parties are tendered 
a list of potential arbitrators. Each party may then either strike a designated 
number of individuals from the list or rank those on the list according to 
preference. The arbitrator is then chosen from those remaining on the list or 
from those with the highest overall ranking. 158 

The PBGC is a fairly typical example as to how arbitrators are selected. 
Under the PBGC final rules, the parties shall select an arbitrator within 45 days 
of initiation of arbitration or at a mutually agreed time. Several comments to the 
proposed rule on this issue suggested allowing the parties to select the arbitrator 
before initiation of arbitration. PBGC rejected the suggestion because it believes 
that post-initiation selection will reduce the risk of jeopardizing the arbitrator's 
neutrality. 159 

In its proposed rules, the PBGC invited comments on the usefulness of a 
PBGC-maintalned roster of qualified arbitrators. The PBGC agreed with the 
majority of comments that such a roster would duplicate those already maintained 
by private organizations. PBGC will not, therefore, implement the proposal. 160 
The American Arbitration Association (AAA) maintains a roster of qualified arbi- 
trators from which it makes selections after parties in dispute have had an 
opportunity to rank the acceptability of the candidates. 1^1 The PBGC noted in 
the preamble of the final rules, however, that plan sponsors may still maintain 
their own rosters without violating preselection restrictions. 1^2 

The PBGC rules do not state specific qualifications for the arbitrator 
because, after considering comments on the issue, the PBGC determined that the 
arbitrator would assuredly be qualified because the parties are required to select 



158. Superfund; see discussion at note 567. FIFRA; see discussion at note 416. 

159. 50 Fed. Reg. 34686. 

160. 50 Fed. Reg. 34679. 

161. AAA rules - Section 12. 

162. 50 Fed. Reg. 34680. 



337 



him by mutual agreement. ^°*^ 

Upon accepting an appointment, each arbitrator must disclose to the parties 
any "circumstances likely to affect his impartiality. "^^^ If any party determines 
that the arbitrator should be disqualified on the ground that he is not impartial, 
he must request, within 10 days, that arbitrator withdraw. If the arbitrator 
agrees that he is no longer impartial, he must withdraw from the proceeding and 
notify the parties of his reasons. ^^5 one comment to the PBGC proposed rule 
on this issue argued that disqualification would be too easy under the rule, while 
another argued that the rule should provide the parties with a mechajiism to 
compel the arbitrator to withdraw. The PBGC concluded that its final rule has 
struck a reasonable balance. ^^6 

If a selected arbitrator declines appointment or, after accepting, withdraws, 
dies, resigns, or is for some reason unable to perform his duties, the parties shall 
select another arbitrator within 20 days of receiving notice of the vacancy. 1^'*' 
PBGC initially proposed allowing 45 days for selecting a new arbitrator but 
reduced the limit because the parties will have had already identified suitable 
candidates during the original selection. 1^8 The parties may seek designation 
and appointment of an arbitrator in a U.S. District Court if they are unable to do 
so within the time limit of the rules. ^^^ 

The second way is for the arbitrator to be a private individual who is 
imposed on the parties without their participating in the selection. This process 
is used in any of the case studies, and it is followed in the administration of the 
Medicare program administered by the Department of Health and Human Services. 

The third means of obtaining an arbitrator is for the agency to appoint an 
agency official to serve that function. The CFTC and the MSPB follow this 
model. This is unlike the typical binding commercial arbitration, but quite similar 
to the non- mandatory court annexed programs. The dispute in both instances is 
submitted to the arbitrator only with the parties' concurrence. Thus, the parties 
can decide whether the nature of the dispute and their respective needs are such 
that this procedure is in their interest to pursue. Hence, although some of the 
protections normally afforded in arbitration is lacking, the parties are in a 
position to make the choice of whether or not to invoke the process. Indeed, the 
Medicare decision would indicate that the process should be fully acceptable even 
if imposed on the parties, so long as minimally acceptable procedures are followed 
in reaching the decision. 



163. 50 Fed. Reg. 34679, 

164. § 2641.3(b). 

165. § 2641.3(c). 

166. 50 Fed. Reg. 34681. 

167. § 2641.3(d). 

168. 50 Fed. Reg. 34681. 

169. § 2641.3(e). 



338 



The fourth means of appointing an arbitrator would be for the parties to 
choose from among a list of agency personnel. The Chicago office of the Merit 
System Protection Board are selected in this wayj^^O and arbitrators for Super- 
fund are selected from an agency approved list of private individuals. 



Norms and Precedents. 

Some administrative arbitration programs are directed to apply existing law 
and precedent. 1*^1 In such cases, they are alternative procedures to the same end 
as a more formal process. 1*^2 

Several of the programs are explicitly non-precedential, in that an arbitral 
decision in a matter cannot serve as resolving any issue for any purpose other 
than that before the arbitrator. 1*^3 xhg CFTC believes the lack of precedential 
or res judicata effect is a positive incentive to use the arbitration process since a 
decision will not have a potentially damaging collateral effect. 174 Several 
comments on the PBGC's proposed rule indicated, however, that they thought 
compiling the awards would provide valuable guidance for future decisions. 



170. Adams and Figueroa, Expediting Settlement of Employee Grievances in the 
Federal Sector, (Report to ACUS Evaluating MSPB's Appeals Arbitration 
Procedure) (1985) at 31. 

171. PBGC, CFTC, MSPB. Whereas the arbitrator in the PBGC is to apply 
existing law, the agency has noted that the regulation establishing the 
program does not tell the arbitrator just where or how to find it, 50 Fed. j, 
Reg. 34,681. I 

172. For example, in reviewing the difference between arbitration under a 
collective bargaining agreement and review by the Merit Systems Protection 
Board, the court said: 

While undoubtedly hoping to encourage employee selection of 
the grievance-arbitration process, Congress did not wish that 
choice to be made on the basis of a predictable difference in 
substantive outcome. To the contrary, it envisioned a system 
that would, as between arbitration and MSPB procedures, 
'promote consistency ... and ... avoid forum shopping.'" Thus, 
'•the arbitrator's authority can be no less than the MSPB's 
but also ... it can be no greater." Devine v. Pastore , 732 
F.2d 213, 216 (D.C. Cir. 1984). 

And see, Cornelius v. Nutt, 105 S.Ct. 2882 (1985). 

173. CFTC. For example, in Superfund, 40 C.F.R. 305.51(c) provides: 

No award or decision shall be admissable as evidence of any 
issue of fact or law in any proceeding brought under any 
other provision of CERCLA or under any other provision of 
law. Nor shall any prearbitral settlement be admissable as 
evidence in any such proceeding. 

174. Nelson, CFTC's New Rules; Some Innovative Approaches to Adjudication ; 9 
Ad. L. News 1 (1984). 



339 



Unlike the others, the FIFRA program does not provide any guidance to the 
arbitrator as to the norm to apply. Because of its lack of standards, It has been 
attacked as an impermissive grant of legislative power to the arbitrator, and at 
least two courts have agreed. ^^5 others, however, have not.^^^ The matter is 
likely to be raised again until a definitive resolution is made.^^*^ Whether 
permissible or not, such standardless arbitration appears inadvisable. Arbitration 
is generally not appropriate for developing a "common law" or other definitive 
norm that is to provide guidance for future conduct. ^^* Without existing 
standards and without such a common law, decisions would run the risk of being 
arbitrarily ad hoc when criteria should be developed. The major issue — whether 
compensation should be based on cost of developing the data or its value once 
developed -- is not likely to be resolved by the expertise of the administrator, 
nor supplied by reference to an external standard. At minimum, such a program 
should authorize the affiliated agency to issue rules to establish the major 
guidelines that will be applied. 



Record and Explanation. 

The Administrative Procedure Act and many of the cases imposing the 
requirement for "some sort of hearing"179 p^ly largely on paper for minimal 
quality control: They require a decision to be based on a record and be explained 
as to what facts the decision maker believes flow from that record, as well as the 
conclusions of law. This process permits a reviewing court or other body to look 
over the shoulder of the decision maker to ensure an acceptable level of ac- 
curacy. A major advantage of arbitration is its speed and finality, with the 
quality control provided by other means. In it, paper is a means to the decision 
but largely ancillary for purposes of oversight. The nature and purpose of the 
"record" is therefore different in arbitration as opposed to a judicial or ad- 
ministrative hearing. 



175. Monsanto v. Acting Administrator, 564 F. Supp. 552 (E.D. Mo. 1983), rev'd on 
other grounds sub nom. Ruckelshaus v. Monsanto Co., 104 U.S. 2862 (1984); 
Union Carbide Agricultural Products v. Ruckleshaus, 571 F. Supp 117 
(S.D.N.Y. 1983), rev'd sub nom, Thomas v. Union Carbide Agricultural Pro- 
ducts, 105 S. Ct. 3325 (1985). 

176. Sathon, Inc. v. American Arbitration Association , 20 ERC 2241 (N.D.Ill. 1984). 

177. The issue was pressed in the Supreme Court in Thomas v. Union Carbide 
Agricultural Products Co., 1055 S. Ct. 3325 (1985) but the Court decided it 

was neither adequately briefed nor argued to this Court and was 
not fully litigated before the District Court. Without expressing 
any opinion on the merits, we leave the issue open for determina- 
tion on remand. 

105 S. Ct. at 3340. 

178. Although addressing problems with settlements and not arbitration, the need 
for establishing and adhering to norms is. raised by Edwards, Fiss, (1984), 
and Schoenbrod, all supra, note 66. 

179. Friendly, Some Kind of Hearing , 123 U. Pa. L. Rev. 1267, 1316 (1975). 



340 



Thus, for example, in most of the administrative arbitration programs that 
were surveyed, a full record could be generated at the request of a party but are 
not as a matter of course. To be sure, the arbitral decisions turn on written 
materials that are disgorged through some sort of discovery and introduced at a 
hearing but, absent a request, transcripts of the hearing are typically not kept 
nor are the decisions explained with the rigor of an administrative decision. 180 
The decision is usually a review of the factual and legal basis of the decision, but 
the rules typically indicate it is to be more abbreviated. 

If administrative decisions are to be fully reviewed in another forum, 1^1 
they may need a fuller explanation and a more fully developed record than is 
customary in private sector arbitration. That, of course, comes at the expense of 
time and cost; and, indeed, subsequent review also comes at the cost of finality. 

Privacy. 

One of the reasons parties sometimes choose private sector arbitration is 
that the record and the decision itself can be kept private and confidential. To 
the extent the arbitration is viewed as part of an administrative program, the 
expectation would be that they should be accessible to the public, or conducted 
"in the sunshine." In those programs in which the program is a part of the 
agency itself and results in an agency decision, 1^2 t^g Freedom of Information 
Act would apply and hence the record would be subject to full public access. 
The others, however, do not result in an agency decision. Thus, if the agency is 
not a party,183 poiA would not apply. 184 jn that case, the proceeding likely 



180. This point was emphasized by the D.C. Circuit in a case reviewing the 
nature of judicial review of an arbitrator's decision concerning disciplinary 
proceedings against a government employee: 

If arbitration becomes simply another level of decision 
making, subject to judicial review on the merits, arbitrators 
may begin to decide cases and write opinions in such a way 
as to insulate their awards against judicial reversal — 
producing opinions that parrot the appropriate statutory 
standards in conclusory terms, but suffer from a lack of 
reasoned analysis. Such a shift from the arbitral model, in 
which decision makers are free to focus solely on the case 
before them rather than on the case as it might appear to an 
appellate court, to the administrative model, in which 
decision makers are often concerned primarily with building a 
record for review, would substantially undercut the ability of 
arbitrators successfully to resolve disputes arising out the 
employment relationship. Devine v. White , 697 F.2d 421, 436 
(D.C. Cir. 1983). 

181. See infra concerning agency and judicial review. 

182. MSPB, CFTC 

183. PBGC, FIFRA 

(continued...) 



341 



could remain confidential absent overriding rules or statute. If, of course, the 
agency is a party, as in Superfund, then FOIA would apply to its records and 
hence likely that of the entire proceeding. 



Review by the Agency. 

To the extent the arbitration results in an agency order, the traditional 
relationship between the decision made by the hearing officer and the agency 
would provide for either appeal to the agency or discretionary review by the 
agency on its motion. One of the attributes of voluntary arbitration, however, is 
its finality. Thus, again, the two concepts collide in concept. 

The Merit Systems Protection Board, for example, initially provided for 
agency review only to address harmful procedural irregularity or a clear error of 
law. While more review than under commercial arbitration, it was more limited 
than usual. In response to views of the parties that typically appear before it, 
the Board changed its Appeals Arbitration Procedure into the Voluntary Expedited 
Appeals Procedure in part to provide full appeal to the agency. 

The CFTC's arbitration program provides that the agency may review a 
decision on its own motion to determine that it is not the result of any fraud, 
partiality, or other misconduct. In this case, the agency is providing the same 
narrow review typically accorded voluntary arbitration. 

To the extent the arbitral award becomes an agency order, it would seem 
appropriate for the agency to have some power to review to ensure it meets 
minimal levels of acceptability. To ensure the benefits of expedition and finality, 
however, that review should be quite narrow, probably akin to the standard of 
judicial review under the arbitration act. Thus, an agency should review only for 
gross deviation from policy or procedure, which is the administrative analog of 
the award's being outside the scope of the arbitrator's authority. 

The hybrid programs,185 however, have no review by the agency. That is 
likely stems from a view that the very reason for the arbitration is that the 
matter is largely a private sector dispute that does not require agency action. 186 



184. Even if a private arbitrator is retained by an agency, it would not appear 
that the arbitrator's records that are developed in a hearing are agency 
records for purposes of FOIA. They would seem analogous to records 
developed by a government contractor to which the government has access, 
in which case the Supreme Court held that they are not agency records. 
Forsham v. Harris, 445 U.S. 169 (1980). Moreover, if the record remain in 
the possession of the arbitrator, the agency is not obligated to retrieve 
them. Kissinger v. Reporters Committee for Freedom of the Press, 445 U.S. 
136 (1980Ti 

185. PBGC, FIFRA, Superfund. 

186. Superfund does not fit this model. Its arbitration program applies standards 
developed by the agency and determines the agency's liability. Thus, it is 
clearly not a "private" dispute. The fact that the decision is not made by 

(continued...) 



342 



Hence there is no reason for the agency to be Involved in reviewing let alone 
deciding. 



Judicial Review 

There are essentially three forms of judicial review of administrative 
arbitration decisions: none; limited, akin to traditional arbitration; and some 
variant of the APA's arbitrary and capricious standard. 

No Review; Waiver . If parties decide to use an arbitration program to 
resolve an existing dispute, one component of that election could be a waiver of 
any right to seek the judicial review normally accorded administrative action. 
That is, by opting into arbitration, the parties would opt into its full ramifica- 
tions, including its finality. The CFTC programs follow this approach. The 
Supreme Court recently sustained such waivers of judicial review on the ground 
that the right to have the dispute heard by an Article III court is a personal one, 
and hence it may be waived. ^^"^ 

The extent to which such waivers are enforceable when the election is made 
before the dispute arises is open to question, at least in some instances. The 
Supreme Court has held that a predispute agreement to arbitrate any claim that 
would arise between a securities broker and its customer is not enforceable since 
it could derogate rights provided by the Federal securities laws.^^^ Although the 
case has been questioned and limited, ^^^ it continues to stand for some limitation 
on the ability of a person to sign away his or her rights to an administrative or 
judicial proceeding. Moreover, the Court has followed this line of reasoning in 
other cases. It recently held that even though some aspects of a matter may be 
arbitrated, an arbitral award could not preclude a judicial role in protecting the 
federal statutory and constitutional rights that Section 1983 is designed to 



186. (...continued) 

an agency official may indicate a distrust for the ability of separation of 
functions doctrines to result in impartiality while still wanting to maintain 
enough control over the process that it will result in expeditious, acceptably 
decisions; the alternative would be to rely on the courts, and the agency 
could not set the agenda there. 

187. Schor v. Commodity Futures Trading Commission , 106 S. Ct. 3245 (1986). 

188. Wilko V. Swann , 346 U.S. 427 (1953). 

189. See, Dean Witter Reynolds Inc. v. Byrd , 105 S. Ct. 1238 (1985). The lower 
courts split as to Byrd's effect, with some holding that preenforcement 
agreements to arbitrate securities disputes were enforceable, Halliburton A 
Assoc, Inc. V. Henderson, Few A Co., 774 F.2d 441 (11th Cir. 1985), while 
others disagreed and continued to apply Wilko's traditional limitation, 
Conover v. Dean Witter Reynolds, Inc., 794 F.2d 520 (9th Cir. 1986). 

The Supreme Court has granted certiorari to resolve the matter. McMahon 
V. Shearson/ American Express, 788 F.2d 94 (2d Cir.) cert, granted , 107 S. Ct. 
60 (1986). The resolution of this case should have a significant effect on the 
extent to which predispute agreements to arbitrate matters involving of 
public policy are enforceable. 



343 



safeguard. 1^0 Thus, neither full faith and credit nor a common law rule of 
preclusion of review would permit a court to accord res judicata effect to an 
unappealed arbitration award. 

The combined teaching of these cases is that if a dispute Involves Important 
public rights, the court may invalidate an agreement to subject them to binding 
arbitration and hence a party could still have the matter heard in a traditioral 
manner. 191 In other instances, however, the agreement is enforced, and the 
matter is referred to arbitration, with its limited review. 1^2 while technically not 
"waiver" cases in that such an agreement would preclude judicial review altogether 
and arbitration has some judicial review, the cases do mark an outer boundary of 
the ability of parties to sign away their rights before a dispute arises. 

Limited . Judicial review of traditional arbitration awards is very narrow. 
The United States Arbitration Act^^^ directs courts to enforce the awards except 
(a) where it was procured by corruption, fraud, or undue means; (b) where there 
was evident partiality or corruption in the arbitrators; (c) where the arbitrators 
were guilty of misconduct in the conduct of the hearing to the extent the rights 
of any party were prejudiced; or (d) where the arbitrators exceeded their powers 
assigned under the agreement. l^'* 

The standard applied in FIPRA tracks this approach. It provides for judicial 
review only in the case of "fraud, misrepresentation, or other misconduct by one 
of the parties to the arbitration or the arbitrator.. .."195 jhe Court has ack- 
nowledged that limited judicial review is permissiblel^^ and has upheld it against 



190. MacDonald v. City of West Branch , 104 S. Ct. 799 (1984). See also, Alexan- 
der V. Gardner-Denver, 415 U.S. 36 (1974). 

191. Other aspects of an arbitration agreement may be enforced, however. Thus, 
when a securities agreement provided that "Any controversy between you and 
the undersigned arising out of or relating to this contract or breach thereof 
shall be settled by arbitration" the portion arising under the Federal law was 
heard by a court since the dealer assumed it would not be referred to 
arbitration, but that arising under state law was ordered arbitrated. Dean 
Witter Reynolds Inc. v. Byrd , 105 S. Ct. 1238 (1985). 

192. Mitsubishi Motors Corp. v. Soler Chrysler- Plymouth , 105 S.Ct. 3346 (1985). 

193. 9 U.S.C. § 10. 

194. As "a matter of federal law, any doubts concerning the scope of arbitrable 
issues should be resolved in favor of arbitration." Moses M. Cone Memorial 
Hospital V. Mercury Construction Corp., 460 U.S. 1 (1983). 

195. 7 U.S.C. Sec. 136a(c)(l)(D)(ii). 

196. Many matters that involve the application of legal standards to facts and 
affect private interests are routinely decided by agency action with limited 
or no review by Article III courts. See, e.g., 5 U.S.C. §§ 701(a)(1), 701(a)(2); 
Heckler v. Chaney , 105 S. Ct. 1649 (1985); United States v. Erika, Inc., 456 
U.S. 201, 206, (1982) (no review of Medicare reimbursements); Monaghan, 
Marbury and the Administrative State , 83 Colum. L. Rev. 1, 18 (1983) 
(administrative agencies can conclusively adjudicate claims created by the 

(continued...) 



344 



a challenge that it constitutes a wrongful delegation of judicial power to the 
arbitrator. 1^*^ The Supreme Court left open the possibility, however, that a 
dissatisfied data provider could sue in the Court of Claims for a "taking" under 
the Tucker Act. 1^8 Thus, the Court seems to indicate that it does not regard the 
arbitral award as a judicial finding, since presumably there would be no "taking" 
if the amount were judicially determined. ^^^ This may result in the anomalous 
result that a dissatisfied data submitter could obtain judicial review of the arbi- 
tral award by suing in the Court of Claims, whereas the data user may have 
difficulty securing a similar review. 

Arbitrary or Capricious . The MSPB and Superfund programs both provide for 
"arbitrary and capricious" scope of judicial review. 200 p^r example, the Super- 
fund rules provide: 



196. (...continued) 

administrative state, by and against private persons); Redish, Legislative 
Courts, Administrative Agencies, and the Northern Pipeline Decision , 1983 
Duke L. J. 197 (same). 

Thomas v. Union Carbide Agricultural Products, Inc., 105 S. Ct. 3325, 3334 
(1985). 

197. Thomas v. Union Carbide Agricultural Products, Inc., 105 S. Ct. 3325 (1985). 

198. Ruckelshaus v. Monsanto , 104 S. Ct. 2826 (1984). 

199. The Court has made quite clear that arbitration is not a judicial proceeding 
subject to full faith and credit. Dean Witter Reynolds Inc. v. Byrd , 105 S. 
Ct. 1238 (1985). 

200. Under the Randolph- Sheppard Vending Stand Act, 20 U.S.C. Sec. 107, blind 
persons who are licensed as vendors by state agencies may receive prefer- 
ence in obtaining vending stands on federal property. An individual who is 
dissatisfied with the state agency's actions may obtain a hearing on the 
state level. If he or she remains dissatisfied, he or she may request the 
Secretary of Education to establish an arbitration panel to hear the dispute. 
A state agency may also request arbitration whenever it believes a federal 
agency or department Is not complying with the Act. 

The arbitration is the exclusive remedy for an alleged grievance, not- 
withstanding Congress's saying it "may" be used. Hence someone who 
believes he or she has been denied such a preference must submit the 
complaint to arbitration before pursuing the matter in court. That is, it has 
been held that the arbitration is an administrative remedy that must be 
exhausted before a court will entertain the complaint. Randolph- Sheppard 



Vendors of America v. Weinberger, 795 F.2d 90 (D.C. Cir. 1986 



f: 



While the awards are "final and binding on the parties," 20 U.S.C. Sec. 
107d-l, they are "subject to appeal and review as a final agency action" 
under the APA, 20 U.S.C. Sec. 107d-2. Thus, the arbitrary or capricious 
standard applies to these arbitrations. The court In Georgia Department of 
Human Resources v. Bell, 528 F. Supp 17 (N.D. Ga. 1981) reviewed an award 
under 5 U.S.C. Sec. 706 as final agency action, as if it had been made by 
the agency Itself. 



345 



The award or decision of [an arbitrator] shall be binding and 
conclusive, and shall not be overturned except for arbitrary 
or capricious abuse of the [arbitrator's] discretion. 201 

The scope of review under PBGC is more complicated. One part of the 
statute indicates that the arbitrator's findings of fact are to be presumed correct 
subject to rebuttal only by a clear preponderance of the evidence. 202 -phia would 
appear to provide for de novo judicial determination of issues of law and a review 
of facts under a "clear preponderance of the evidence" standard. The matter is 
confused, however, by another section of the Act which directs that, to the 
extent consistent with the Multiemployer Pension Plan Amendments Act of 1980, 
the awards are to be enforced under the limited provisions of the United States 
Arbitration Act. At least one court has held that only the limited scope of 
review provided commercial arbitration is available. 203 Most courts, however, 
have interpreted the Act as providing for the broader review. 

One case draws an important analogy between the arbitration and admini- 
strative agencies. 204 n argues that "judicial deference to the arbitration process 
[under the Act] is mandated by the same policies that underlie the principles of 
Judicial deference to administrative agencies. "205 Thus, the decisions are 
reviewable, like those of an agency, to determine whether the applicable law was 
correctly applied and whether the findings comport with the evidence. Like an 
Agency, the arbitrator will be someone skilled in pension and labor matters and 
thus likely to fashion a resolution superior to a court in matters within that 
expertise. 

An MSPB case wrestled with the relationship between an arbitration award 
and the court in words reminiscent of the origins of the "hard look" doctrine:206 

For judicial deference to arbitral decisions to have meaning- 
ful application, the reviewing court must be confident that 
the arbitrator has undertaken a thorough review of each 
aspect of the ... action. 207 

Thus, the standard that has evolved in several of the administrative arbitra- 
tion programs is for a court to review an award as if it were a decision of an 
agency. This standard may be appropriate in those cases where the arbitration is 



201. 40 C.P.R. Sec. 305.51; 42 U.S.C. Sec. 9612(b)(4)(G). 

202. 29 U.S.C. Sec. 1401(b)(2), (c). 

203. Washington Star Company, v. International Typographical Union Negotiated 
Pension Plan , 729 F.2d 1502 (D.C. Cir. 1984). 

204. JAM National Pension Fund Benefit Plan C v. Stockton TRI Industries, 727 
P. 2d 1204 (D.C. Cir. 1984). 

205. Id. at 1207. 

206. Greater Boston Television Corp. v. FCC , 444 F.2d 841 (D.C. Cir. 1970), cert 
den. 403 U.S. 923 (1971). 

207. Local 2578 AFGE v. GSA, 711 F.2d 261, 267 (D.C. Cir. 1983). 



346 



mandatory,208 j^ that it is the only means available for resolving the dispute. In 
that case, the fuller judicial review may be an important protection. Even in this 
case, however, the courts should recognize the benefits that were supposed to be 
derived from the arbitration scheme, as opposed to reliance on administrative 
adjudication under the APA, and hence accord deference to the arbitral award or 
some other form of limited review so long as there is an indication of the proper 
standards' being applied. 209 Perhaps, the proper standard of judicial review 
should be no different than that of agency action before it became more intru- 
sive: a rational basis test. 



208. Mandatory arbitration seems Inappropriate except in those cases when the 
benefits of a trial type hearing are clearly and -^^^^V.^ have r te'chnica^ 
the need to (1) save time or other transaction costs or (^2) have a technical 
expert resolve the Issues. Otherwise, the "arbitration" is really stripped 
c'ean adjudication and the hallmark of arbitration - its voluntariness - is lost. 



209. 



Devlne v. White, 697 F.2d 421 (D.C. Cir 1983). 



347 



YI 
CONCLUSION WITH RB8PBCT TO ADMINISTRATiyB ARBITRATION 

Some of the administrative arbitration programs track their private sector 
analogs quite closely. The Commodity Futures Trading Commission's program, for 
example, applies to cases where time and transaction coats jprobably outweigh the 
need for procedural rigor, and the decisions are final. *10 Other programs, 
however, do not fit so well. The FIFRA program, for example, has the finality 
normally accorded arbitration, but it would appear that at least in some instances 
a large amount of money would be at stake and there are no guidelines for how 
the decision will be made. Moreover, that lack will probably not be rectified by 
the expertise of the arbitrator. Some norm — whether through statutory 
prescription, agency rule, or developed common law — would be in order. Were 
it established, the matter would then be better suited for arbitration since it 
would be more a matter of accounting or otherwise applying existing criteria. In 
either event, the margin for error would be substantially reduced. As it stands, 
any need for expedition probably does not outweigh the need for a standard. 

Moat of the administrative arbitration programs have two significant 
differences between them and traditional arbitrs^tion; First, this use is not 
voluntary, either before or after a dispute has arisen, but rather it is the only 
available means of making the decision. 211 Second, the greatest difference 
between most of the administrative arbitrations and private sector commercial 
arbitration is that the arbitral award is subjected to a scope of judicial review 
very similar to that of an administrative action, even when the award Itself is not 



210. Compare this with the criteria at notes 63-67. 

211. Moreover, this relationship between the courts and the arbitration is 
different from that of typical court annexed arbitration where there is a 
trial de novo before the court, sometimes with disincentives against frivolous 
appeals. 



348 



an agency order. 212 

Even though each program differs from the others, what seems to be 
evolving Is a form of "administrative arbitration" in which the agency is at best 
passive. The adjudication — in the form of the arbitration — is outside the 
agency, but the relationship between it and the court is similar to that of the 
court and an agency with respect to Informal adjudication. Once that is re- 
cognized, it provides a new tool for addressing a range of issues that do not need 
the full rigor of A,PA trial type hearings but more Judicial oversight than 
customarily applied in arbitration. Most seem to contemplate that the decision 
itself will be relatively narrow and able to apply existing, well defined stan- 
dards. 213 

Some of the other programs are only variants of the modified procedure that 
have been used previously. 214 jn these, there is very little that is new. In the 
others, however, an interesting hybrid has been born that may have potential for 
substantial growth. 

Unfortunately, "arbitration" is a sufficiently pliable term that it can be used 
to describe virtually any process in which a third party makes a decision. It 
would be helpful if there could be concurrence on some minimal criteria a 
program must have before legitimately being called "arbitration" even in the 
administrative sense. A first cut at that might be: 

• abbreviated discovery; 

• parties' participation in the selection of the arbitrator; 

• application of a pre-existing norm that Is defined by either statute or a 
ride issued by the implementing agency; 

• once norms are applied, discretion is relatively narrow; 

• strict time limits for decision; 

• abbreviated decision, with a discussion of its factual and legal basis but 
no findings; 

• limited review. Arbitration Act or designated as "arbitrary and capri- 
cious" but with a recognition of the nature of the process as defined in 



212. Some courts have said with respect to the PBGC program that the arbitra- 
tion is a form of "exhaustion" of remedies that is a precursor to a judicial 
determination. See, e.g. Peick v. Pension Benefit Guaranty Corp., 742 F.2d 
1247 (7th Cir. 1983). Even with this perspective, however, the arbitration is 
the assigned first step in the decision process. 

213. Superfund. Trustees of the Western Conference of Teamsters Pension Trust 
Fund V. Tho'mpaon Building Materials, Inc., 749 F. 2d 1396 (9th Cir. 1984). 

214. Edles, The Hearing Requirement in the 1980s, 31 Fed. Bar N and J 435 (1984). 



349 



the criteria 



215 



Since tlieae procedurea are more limited than those provided by the APA, the 
process should be used only where the general criteria of arbitration are met.^H 



215. Thu3, the court should .»ure lt«U that the "^""'°^^/PP''*j^ ^^^Idnot 
norms and performed In accordance with the «<5"'"™""' ^"' '' "V^' trial 
«tempt to force the arbitrator to replicate either » Judicial or APA 
t-ype hearing. In either case, the benefit, would be loat. 



right 
t 
1 



216. See supra, at notes 63-67. 



I 



351 



Reprinted with permission froei Federal Bar Journal f 
Voluae 34, pp. 1-20, Copyright 1TT5 

RESOLVING GOVERNMENT CONTRACT 
DISPUTES: WHY NOT ARBITRATE:^ 

By Timothy S. Hardy* and R. Mason Cargill* 

Bv accepting the disputes clause in his contract, the contractor bears the interim 
financial burden and gives up the right of rescission and the right to sue for damages. 
What he receives in return is the Government's assurances of speedy settlement and 
of prompt payment, not payment delayed for months or . . . for years. 

— ^Justice Blackmun 
S&E Contractors, Inc. v. United States^ 

SINCE JULY 1964 Avondale Shipyards in New Orleans has been building 
twenty-six destroyer escorts for the U.S. Navy. It will complete perform- 
ance of this long-term contract with delivery of the last ship this winter. 
When the Navy will complete its performance of the contract — and pay all it 
owes for the ships — is anyone's guess. Avondale filed a $100 million-plus 
contract claim in 1969. To date the Navy has yet to issue a contracting offi- 
cer's opinion, the first major procedural step in dispute resolution. - 

Avondale is not suffering in isolation. Lockheed Shipbuilding in Seattle 
also built some destroyer escorts, and submitted a Si 00 million-plus claim to 
the Navy in 1968. A contracting officer's decision was issued in May 1973 
only after Lockheed filed a complaint with the ^Armed Services Board of 
Contract Appeals (ASBCA).^ Hearings before the ASBCA began this fall, 
but if past experience is any indication, it will be another two years before 
the Board issues a decision."^ 

Shipbuilding contractors now despair of receiving the ''speedy settle- 
ment and prompt payment" that Justice Blackmun said was their due in 
S&E Contractors.^ Outstanding against the Navy are more than Sl.l billion 
in claims more than two years old.'^ This large backlog is often mentioned 
as a primary example of the deteriorating relationships between the Navy 
and private industry." 



•Members, Analysis Group, .Assistant Secretary of Defense (Comptroller). 

'406 U.S. 1. 20 (1972) (Blackmun. J., concurring). 

-Hearings before the Seapower Subcomm. of the House Comm. on Armed Services, 93d Cong., 2d Sess. at 822-23 
'"^•♦) [heremafter cited as Seapower Hearings] (testimony of Edwin Hartzman, President, .■\vondale Shipyards, Inc., 
and M. Lee Rice, President. Ogdcn Corp., .Aug. 2, 1974). 

^Complaint, Lockheed .Shipbuilding and Construction Co.. ASBCA jff 18460 (June 30, 1973). The Lockheed com- 
plaint alleges two causes of action: (l)that the Navy and Lockheed reached an agreement to settle the claim for $62 
"^•llion in 1971; or. in the alternative, (2) on the merits of the claim, Lockheed is entitled to $160 million. .\ decision on 
claim (1) is expected in early 1975. If Lockheed loses, hearings on the merits will follow, and two to three more vcars will 
probably be required for a decision by the Board. In a very recent development, the Lockheed claim was forwarded to the 
Jusiice Department for a fraud investigation. Wall Street Journal, Jan. 9, 1975, at 7, col. 1. 

*Sce n.29 mfra. 

""Supra n. 1 at 20. 

'Included in this total are Avondale's claim for $142 million (Hied in 1969), General Dynamics Quincy's for $211 
"I'llion (filed in 1970-71), Litton Ingall's for $376 million (filed January 19^2) and for $101 million (filed in 1971) and 
Lockheed's for $165 million (filed in 1968-69). See Seapower Hearings, supra n. 2 at 1475-79 (testimony of William Mid- 
dcndoff. Secretary of the Naw, Sept. 26, 1974). 

'"Civilian Shipbuilders Wlutiny' Against Navy," U.S. .News &: World Rep. at 51. (Sept. 9, 1974); Seapower 
Hearings, supra n. 2 at 1012 (testimony of Fred O'Grcen, President, Litton Indusu-ies, Aug. 13, 1974); at 653 (testi- 
">ony of Edwin M. Hood, President. Shipbuilders' Council, July 26, 1974). 

1 



352 

2 FEDERAL BAR JOURNAL (Vol. 34:1 

The basic procedures that the Navy uses to resolve contract disputes 
are the same as those used by most Government agencies. Decisions are 
issued by contracting officers and by boards of contract appeals before most 
claims are presented to the judicial system. This internal agency review has 
long been advocated in Government procurement as a desirable alternative to 
direct judicial resolution. Congress, the Courts and commentators'* have all 
agreed that internal review processes have the potential to provide fast, 
fiexible, low cost, and fair treatment of contractors. As one House committee 
was told: 

The purpose of the procedure which gives contractors the right to appeal to this 
Board is to provide an administrative method of settling these disagreements speedily 
and fairly, without the necessity of resorting to the courts.'' 
In interpreting the standard disputes clause, the Supreme Court has ac- 
cepted the congressional and executive intentions: 

The disputes clause included in Government contracts is intended, absent fraud or 
bad faith, to provide a quick and efficient administrative remedy and to avoid "vexa- 
tious and expensive and to the contractor often times ruinous litigation. "'° 
The administrative procedures have twin goals: fairness and efficiency. 
Little empirical evidence exists on the substantive fairness of existing pro- 
cedures, and no attempt will be made here to explore whether contractors 
are currently receiving the decisions they merit. The Navy experience is one 
dramatic example, however, of the current system's failure to fulfill the 
second goal, efficiency. Speed, informality and inexpensiveness, three impor- 
tant aspects of efficiency, are intended results of the dispute settlement pro- 
cedures that have not always been achieved. 

The Navy's inability to resolve contract disputes with shipbuilders is 
but the largest example of more general failings of Government contract dis- 
pute procedures. The Commission on Government Procurement found that 
processing of small claims was often slow and costly. Two-thirds of the small 
businesses told the Commission that they would not bother to appeal an 
adverse contracting officer decision to a board of contract appeals on claims 
of less than $5,000. The Commission found that 33 percent of all disputes 
took more than six months to resolve at the contracting officer level; and, of 
those disputes appealed to boards of contract appeals, 70 percent took more 
than six months to resolve, 15 percent more than two years." 



"See Frenzcn, Some Thoughts on the Similarity of the Boards of Contract Appeals and Commercial Arbitration, 
3 Pub. Cont. L.J. 56, 77 (1970); Shedd, Disputes and Appeals: The Armed Services Board of Contract Appeals, 29 Law 
& CoNTEMP. Prob. 39, 40-41 (1964); Kipps, The Right of the Government to Have Judicial Review of a Board of Con- 
tract Appeals Decision Made Under a Disputes Clause, 2 Pub. Cont. L.J. 286, 296 (1969). 

''Hearing on H. Res. 67 Before Subcomm. for Special Investigations of House Comm. on Armed Services, 85th 
Cong., 2d Sess. at 794-95 (1958). For Army, Navy and Air Force views on the ASBCA's goals, see Shedd, supra n.8 at 61 . 

'"S & E Contractors, Inc. v. United States, supra n. 1 at 8. As Justice Blackmun pointed out in the quotation from 
S & E cited at the beginning of this article, a contractor gives up his right to suspend or halt performance under the 
standard disputes clause in Government contracts. Contractors must abide by the directions of Government ofHcials when 
those directions are given and leave the resolution of disputes to subsequent determination. As Justice Blackmun implies, 
and other commentators have argued, it is therefore "common fairness" for the Government, in exchange, to guarantee 
an expeditious means for compensating contractors for work required of them although not specified in the contract. 
Shedd, supra n.8 at 40. 

"Procurement Commission, infra n.l2. Vol. IV at 3-4, 11-12, 16-19. .Small claims are the bread and butter of the 
boards of contract appeals. If the early 1970's, twenty-two percent of all claims to boards were for under $1,000, fifty-one 
percent under $10,000 and sixty-three percent under $25,000. Id. at 15. 



353 



Vol. 34: 1 1 CONTR.ACTS 



Numerous suggestions have been made to improve the disputes proc- 
ess,'- but one possible alternative settlement device — private arbitration — 
has received little attention. Several Comptroller General decisions — none 
more recent than 1953 — held that arbitration by the U.S. Government was 
illegal.'-^ Those decisions have not gone unchallenged,'" but they seem to 
have stifled effectiveiv any attempt to use in Government contract cases this 
highly popular means of settling private disputes. Outdated arguments that 
it is illegal for the Government to submit contract claims to private arbitra- 
tion should be discarded so that sound policy decisions can be made by con- 
trasting arbitration's advantages and disadvantages with those of other 
proposed settlement procedures. 

The remainder of this article will consider the desirability, legality and 
feasibility of using private arbitrators to settle Government contract disputes. 
Description of the existing dispute procedures, analysis of their failings, and 
suggestion of the relative advantages of private arbitration will be followed 
by consideration of the legality and practicality of submission of Govern- 
ment contract disputes to arbitration. 

Would Arbitration be Desirable? 

Existing Disputes Procedures 

Under existing contracts disputes procedures, each Government agency 
gets first crack at resolving disagreements, and, if it fails, final decisions are 
made within the judicial system. The head of each executive department has, 
incident to his general authority to run his department, the authority to 
decide contract disputes.'^ Most agency heads have delegated their author- 



Lack of speed in resolving claims can be costly to a contractor, not only because of litigation expenses, but also be- 
cause of limited interest penalties against the Government. Until 1972, the Government paid no interest on amounts it 
was ordered to pav through disputes resolution. Id. at 29. On more recent contracts, the Government contmues to pay 
interest only from the date a claim was filed with a board of contract appeals, which mav be long after the work for which 
payment is being received was completed. Defense Procurement Circular So. 97 (Feb. 15, 1972); FPR 1-1.322, ASPR 
7-104.82. As Shedd, supra n.8 at 41, points out, "a contractor could easily be thrown into bankruptcy bv delay in pay- 
ment over a dispute; and it is little consolation to such a contractor to know that years later his trustee in bankruptcy 
will obtain a judgment against the government in an action at law." 

•Report of the Commission on Government Procurement (hereinafter cited as Procurement Commission], Vol. 4 at 
'■•*. 11-34 (1972); L. Spector, Contract Disputes and Remedies: Are Current Procedures for Redress of a Contract 
Grievance Against the Government Fair and Effiaent.^ 5 Nat. Cost. Mgt. J. 1 (1971). 

'M32 Comp. Gen. 333 (1953); 8 Comp. Gen. 96 (1928); 7 Comp. Gen. 541 (1928); 6 Comp. Gen. 140 (1926); 5 
Comp. Gen. 417 (1925); sec also 19 Comp. Gen. 700 (1940). 

"R. Braucher, Arbitration under Government Contracts, 17 Law Sl Conte.mp. Prob. 473 (1952); S. Fine, Valid- 
ly of Arbitration Provisions in Federal Procurement Contracts, 9 Mia.mi L.Q. 451 (1955). The lively dispute in the 
l"40's over Government contract arbitration can be followed in Note, Arbitration and Government Contracts, 50 Yai^ 
Lj. 458 (1941); Anderson, The Disputes Article in Government Contracts, 44 Mich. L. Rev. 211 (1945); Kronstcin. 
Business Arbitration — Instrument of Private Government, 54 Yale L.J. 36 (1944). The 1940's dispute over the legality 
°' arbitration of Government contract claims was precipitated bv introduction of three bills in Congress to authorize 
arbitration, S. 2350 and H.R. 7163, 77th Cong., 2d Sess. (1942) and H.R. 3665. 78th Cong., 1st Sess. (1944). None of 
"fse bills were ever acted upon. They were introduced in response to inclusion of arbitration clauses in several thousand 
wartime defense contracts; even though prevailing legal opinion was that such clauses were beyond agency statutory 
authority and were not binding on the Government. Greske. Settlement of War Contract Disputes, 29 A.B.A.J. 13 
(1943); Greske. The Law of Governme.nt Defense Contracts §§158-62 (1943). No judicial interpretations of 
^hese contract clauses have been discovered. 

'^United States v. Corliss Steam-Engine Co., 91 U.S. 321 (1875); United States v. Adams, 74 U.S. (7 Wall) 463 
(1868); see Shedd. supra n.8 at 42-43. 



354 

4 FEDERAL BAR JOURNAL (Vol. 34:1 

ity to a board of contract appeals.'^ Government contracts generally provide 
that disputes will first be decided by the Government contracting officer with 
a right of appeal from his findings to the boards of contract appeals. '^ There 
is thus a two-step process within the agency with the decision-makers at each 
step being agency employees."* Unsatisfied contractors also have the right 
to appeal internal board decisions to either U.S. District Courts or to the 
Court of Claims depending upon the amount in controversy.'*^ The difficul- 
ties in reaching satisfactory disputes settlements have occurred at both the 
contracting officer and board of contract appeals levels, and it is at those 
levels that arbitration by outside experts appears a reasonable alternative. 

Each Government contract has assigned to it a contracting officer. He is 
in charge of administering the contract, insuring that its terms are fulfilled, 
issuing change orders and resolving contract disputes.-*^ He is intimately 
familiar with the progress of a contract even before a contractor submits a 
claim. On a large, complex contract, such as those involved in Navy ship- 
building, submission of a claim will initiate a substantial review process.-' A 
team of engineers, accountants and lawyers will attempt to determine wheth- 
er legal liability exists, and, if so, what additional compensation is owed. 
Based on the findings of this team, a contracting officer's decision will be 
issued. Often, time lapses of two-to-five years have occurred between filing of 
a claim and issuance of a contracting officer decision in Navy shipbuilding. ^^ 
Considerable disagreement can and has occurred between Navy teams and 
contractors over the type and amount of information needed to assess the 
validity of a claim. In many cases, two, three and even five successive Navy 
teams have reviewed and re-reviewed each claim. Meanwhile, the contractor 
may have submitted and resubmitted his claim documentation up to five 
times either voluntarily or as required by the Government. ^^ 

The contracting officer is an integral part of the Government procure- 
ment team. In most instances, because he is cognizant of the background of 
the claim, he is well-equipped to assess its merits and order payment of it, 
if warranted. When such is the case, there can be great value in requiring an 
initial determination of the validity of a claim by the contracting officer. 

On the other hand, in many instances the contracting officer's naturally 
subjective viewpoint may hinder expeditious disputes settlement. The con- 
tractor may be attacking Government procurement practices. He may be 
claiming inadequate specifications or informal instructions given to him 

"■Sec. e.g.. Charter of the ASBCA, ASPR Appendix A, Part 1, Sec. 1 (1973). 

'Sec. e.g. ASPR 7-103.12 Disputes, ASPR 7.602.6(a) Disputes. In general, exhaustion of these internal proce- 
dures IS required before resort to the courts is allowed if the dispute arises under the contract. See Sachter, Resolution 
of Disputes Under United States Government Contracts, 2 Plb. Co.nt. L.J. 363, 371 (1969); n.32 mfra; and Mcgyeri; 
Pandemonium m the Administrative Resolution of Government Contract Disputes 75 W Va L Rev 121 123-124 
(1972-1973). ..... 

'•For further description, see Procurement Commission, supra n.l2. Vol. 4 at 1 1-22 

"28 U.S.C. §§1346, 1491 (1970). 

J^See Procurement Commission, supra n.l2, Vol. 4 at 11-21; ASPR 1-406 Contract Administration Functions. 

-'For a detailed description of the process, see "Shipbuilding Claims and Their Evaluation by the Navy," Feb. 7, 
1974, an unclassified staff paper by the Counsel of the Naval Ships Systems Command and his Deputy Counsel for 
Claims. For a general description of the contracting officer's role, sec Shedd, supra n.8 at 64-66. 

--See notes, 1-7 supra. 

•^Seapower Hearings, supra n.2 at 1 120-22 . . . (testimony of F. Trowbridge vom Baur, Sept. 16, 1974.) 



355 

Vol. 34:1] CONTR.\CTS 5 

during the life of a contract that caused him to incur additional costs. The 
contracting officer will often naturally be reluctant to admit Government 
errors that reflect badly on either himself or his superiors. He may also feel 
budgetary pressures that limit his ability to compensate contractors for 
Government-caused additional costs. -■• One solution for a contracting officer 
may therefore be to delay decisions or to grant decisions that evaluate con- 
tractors' claims at unreasonably low levels. Requiring the contracting officer 
to be the first level decision-maker in dispute settlement thus has the poten- 
tial advantage of encouraging a knowledgeable person to deal expeditiously 
with the issue, but also the possible disadvantage of lack of objectivity that 
may prevent achievement of this goal. 

A contracting officer's decision to grant only a small percentage of the 
claim generally leads the contractor to appeal to the board of contract ap- 
peals, in the case of the Navy, the ASBCA.-^ The boards of contract ap- 
peals were established as the distinctive non-judicial internal agency re- 
viewers that were to fulfill the goal of providing flexible, speedy, inexpensive 
disputes resolution. Prior to 1962, the boards were free to adopt practices 
aimed at achieving this goal with an understanding that a de novo review of 
any claim was available in the judicial system if the contractor was dis- 
satisfied with a board's decision. -^^ In 1963, however, the Supreme Court 
ruled in the first of several decisions that de novo review of such decisions was 
unavailable in the judicial system.-' The much more limited scope of review 
in the courts has provided incentive for the boards of contract appeals to 
provide sufficient due process to insure completeness and fairness. As a 
result, during the past fifteen years, Government boards of contract appeals 
have adopted most of the formal procedures of federal trial courts. They 
require formal pleadings, allow each appeal a de novo review, provide many 
discovery tools to the parties, receive extensive briefs, hold lengthy hearings 
and do their utmost to accumulate a complete record. '^^ It has become cus- 



^'Thc contracting officer may realize that budgetary problems will be avoided if the dispute eventually goes to 
judicial determination. Payment of Court of Claims judgments under $100,000 is made not from agency accounts, but 
from funds provided by the Permanent and Definite Appropriations Act. 31 L'.S.C. §724a (1970). For judgments over 
• 100,000, the Department of Treasury must obtain funds from Congress. Procurement Commission, supra n.l2. Vol. 
^ at 30. See also Megycri, supra note 17 at 134-136. 

"The caseloads of the boards of contract appeals vary greatly. The ASBCA disposes of more than one thousand 
cases per year, handling contract disputes of not only the armed forces, but also those of State, HEW, .-MD. USIA, the 
National Science Foundation and the Defense Nuclear Agency. Three other boards handle more than one hundred cases 
annually: Corps of Engineers, Veterans Administration and General Services Administration. Less than one hundred 
cases per year are handled by the boards at the Atomic Energy Commission, NASA, Postal Service, and departments of 
'Agriculture, Commerce, Interior, Labor and Transportation. Gantt & Burg, The Atomic Energy Commission Board of 
Contract Appeals— An Experiment in Government Contract Disputes, 6 Plb. Cont. L.J. 167, 168 (1974). Many of the 
problems discussed in this article are peculiar to the large, ASBCA-type, boards. See note 29 infra. 

^'Contractors, too, were secure in feeling that if a board of contract appeals really blundered, de novo review would 
"ght the wrong. Sachtcr, supra n.l7 at 363. 

"United States v. Bianchi & Co., 373 U.S. 709 (1963); United States v. Anthony Grace & Sons, Inc., 384 U.S. 
^24 (1966); Crown Coat Front Co. v. United States, 386 U.S. 503 (1967). 

^*See ASPR, Appendix A, Part 2— Rules 4, 6-10, 13-15. 20-24 (1974); Procurement Commission, supra n.l2, 
Vol. 4 at 17; Spcctor, supra note 12 at 6-7; Spector, Public Contract Claims Procedures— A Perspective, 30 Fkd. Bar j. 
1. 8 n.43 (1971); Frenzcn, supra n.8 at 58-60. 

Most of the boards of contract appeals have optional accelerated procedures that allow a single board member to 
decide cases and encourage waiver of discovery, pleading and briefs. See, e.g.. Charter of the ASBCA, Rule 12; AEC 
procedure in 10 C.F.R. §3.205. These procedures were first instituted in 1958 coincidentally with the Hebert subcommit'/i 



356 



6 FEDERAL BAR JOURNAL [Vol. 34:1 

tomary for the Goernmeni to be represented by a lawyer before the boards 
and a near necessity for contractors to be similarly represented. Therefore, 
when a complex contract dispute involving large amounts of money is liti- 
gated, it is not surprising that two to three years may ensue between filing 
of an appeal and decision.-*^ 

Although both the contractor and the Government deserve a complete 
examination of any claim, conducted with certain procedural guarantees, 
boards of contract appeals were not necessarily intended to be the bodies that 
conduct such reviews. Providing such reviews can be and often is contrary 
to the original goals of speed, flexibility and inexpensiveness. The boards 
have been placed in a position of having little choice but to formalize their 
procedures if they are to provide full fairness to the parties, who will not 
receive a second chance to present their cases in full. 

In recent years Government agencies have adopted contracting proce- 
dures that seek to maximize competition, shift economic risks to the con- 
tractor and provide cost discipline. -^^ At the same time, many contractors 
have been very anxious to continue obtaining Government business during 
otherwise slack times and therefore have made unwisely low bids. On long- 
term contracts, unanticipated inflation has often made contract prices inade- 
quate to cover costs. ^' The contracting environment has thus created great 
incentives for contractors to seek price adjustments through the disputes 
clause. In most cases. Government actions or inactions during the life of a 
contract have provided a measure of validity for contractor allegations by 



tee of the House Armed Services Committee's inquiry into slowness of the disputes settlement procedures. Shedd, supra 
n.8 at 58-60. Availability of these accelerated procedures, however, has now always made possible expeditious settle- 
ments, because (1) they arc available only for claims under $20,000 (AEC) or $25,000 (ASBCA); (2) they are rarely used 
(in only seven percent of pending appeals, although Hfty-one percent of appeals were eligible, according to a study by 
the Procurement Commission, supra n.l2. Vol. 4 at 18); and (3) they are mmimally faster in some agencies, such as the 
AEC, as stated by Gantt & Burg, supra n.25 at 174. (The AEC handles almost all its appeals expeditiously at present. 
See n.29 infra.) 

-"'Some recent complex cases that have required long periods from appeal Tiling to decision include United States v. 
General Dynamics, ASBCA ^MMS (1973) (four years) and United States v. National Manufacturing, ASBCA #15816, 
74-1 BCA #19580 (1974) (three years). In the early I970's, forty-three percent of all board cases took more than one 
year to resolve, fifteen percent took more than two years. Procurement Commission, supra n.l2. Vol. 4 at 18. 

The description in the text of the procedures of boards of contract appeals does not necessarily fit all such boards. 
Gantt and Burg, supra n.25, describe a much more flexible board at the Atomic Energy Commission. The AEC board is 
unique in using both non-lawyers and non-Government employees on its boards. Id. at 179. For each case, a determina- 
tion IS made of the best qualified persons to handle the matter at issue. Id. at 183. The panels act in a very flexible man- 
ner to encourage both parties to clarify the issues and present the relevant evidence, and, if possible, reach compromise 
settlements. Id. at 183-86. The board has made special efforts to expedite appeals of small businesses, to give legal as- 
sistance to such contractors who are sometimes not represented by counsel, and to hold hearings wherever it would be 
most convenient. Id. at 190-91. The AEC board, however, normally disposes of less than twenty appeals per year, id. at 
174; and Gantt and Burg, who have both worked for the board, admit, "The AECBCA could not do many things it does 
were it subjected to a large number of appeals." Id. at 2(K). The proposal made in this article for use of private arbitra- 
tion would attempt to make the advantages of the AEC flexibility more generally available. 

^"See vom Baur, Constructive Change Orders and the Current Claims Climate, an address before the National 
Contract .Management Assoc, June 20 and 21, 1972; Seapower Hearings, supra n.2 at 656-57 . . . (statement of the Ship- 
builder's Council); at 1480 . . . (statement of William Middendorf, Sept. 26, 1974); at ... . (testimony of John T. Gil- 
bride, President, Todd Shipyards, Aug. 8. 1974); at 1501-502 (testimony of Adm. James Holloway, Chief of Naval Opera- 
tions, Sept. 26, 1974). 

^'Seapower Hearings, supra n.2 at 1471-75 (testimony of William Middendorf, Sept. 26, 1974); at 1503 (testimony 
of Admiral James Holloway, Sept. 26, 1974). 



357 



Vol. 34:1) CONTRACTS 7 

establishing a basis for claims of constructive changes.^- Sorting out legal 
liability and related damage calculations is thus often a quite difficult task. 
The established procedures have shov^n themselves often incapable of effec- 
tively resolving such disputes in the expeditious manner intended for a num- 
ber of reasons: 

1. Strong and generally well-founded Congressional and public pres- 
sures have been exerted on Government agencies to be hard-nosed in dealing 
with contractors to avoid waste of limited Government funds. ^-^ In reaction 
to the pressures, Government agencies have shied away from making any 
contract settlements other than those which can be fully, comprehensively 
and accurately justified. 

2. Consistent with normal operating procedures in any large bureau- 
cracy, procurement officials in the Government have been unwilling to stake 
their reputations on approval of any settlements that are other than beyond 
question. The Government negotiators lack an ability to compromise in the 
best interest not only of the immediate contract, but also of long-term good 
working relationships between Government and contractor. ^^ The environ- 
ment has rewarded inaction rather than action at the contracting officer 
level. ^5 

3. The established bodies for making final determination of disputes 
within agencies, boards of contract appeals, have been placed in the position 
of being the final fact finders. As such, they have felt a need for trial-type 
due process as a means of guaranteeing fairness. -^^ 

The motivations of the principal players in the procurement dispute 
settlement process are admirable. On one hand, the Government must be 
ever-vigilant in its contracting procedures; and, on the other, contractors 
deserve fair hearing of their complaints. The net result, however, has been 
an agonizingly slow dispute settlement process that in the end often benefits 
neither the Government nor contractors. The poor results that were to be 
avoided through a flexible dispute process have come to fruition. Contractors 
have become exasperated with the inability of contracting officers or boards 
of contract appeals to reach decisions. Good working relationships have 
been sacrificed in the interest of legally precise determinations of hability. 



'-A constructive change is defined in Navv Procurement Circular No. 31 (March 21. 1973) as a "change based on 
Government conduct, including actions or inactions, which is not a formal written change order but which has the effect 
^ requiring the contractor to perform work different from or in addition to that prescribed by the original terms of the 
contract." The boards of contract appeals have over the past fifteen years greatly expanded the types of Government 
action or inaction that thcv term constructive change orders. Such orders have been considered to involve disputes under 
'he contract, which the boards can resolve, as opposed to breaches of the contract, which must be presented to the courts 
for resolution. Sachter, supra n.l7 at 365-71; Procurement Commission, supra n.l2. Vol. 4 at 15-16. For a description of 
the broad variety of actions or inactions that have been deemed constructive change orders, see vom Baur, Constructive 
Change Orders/Edition III, Government Contractor Briefing Papers (1973). The profusion of such problems in ship- 
building is discussed in Seapower Hearings, supra n.2 at 952-53 (testimony of Edwin M. Hood, July 26, 1974); at 1485-86 
(testimony of William Middendorf, Sept. 26, 1974); at 933-35 (testimony of John Diesel, President, Newport News Ship- 
building, Aug. 6, 1974). 

^'See, e.g.. Hearings before the Subcomm. on Priorities and Economy in Government Joint Economic Comm., 92d 
Cong., 2d Scss., "The .\cquisition of Weapon Systems" (1972-73). 

'*Seapower Hearings, supra n.2 at 1118-27 (testimony of F. Trowbridge vom Baur, Sept. 16, 1974); at 1012 (testi- 
mony of Fred O'Green, Aug. 13, 1974). 

''See n.24, 28 supra. 
^''Procurement Commission, supra n.l2. Vol. 4 at 12. 



358 

8 FEDERAL BAR JOURNAL [Vol. 34:1 

Failures to maintain good working relationships have led private contractors 
to refuse to do Government work and the result has been decreased com- 
petition and higher prices to the Government.-^" The suggestion made here 
for use of private arbitration, although unable in itself to solve the prob- 
lems that cause disputes, does offer an opportunity to ease the settlement 
procedure problems enumerated above. 

Arbitration 

Use of arbitration to settle disputes has expanded tremendously since 
the nineteenth century days when courts disapproved of the procedure 
because it removed cases from their jurisdiction. Private arbitrators are widely 
used in commercial transactions, labor-management relations^^ and insur- 
ance policy claims. The Supreme Court has consistently praised arbitration 
for its role in resolving labor-management disputes.^'' Even the interests of 
governments, state, local and Federal, are ruled upon by private arbitrators. 
Public employees are now represented by unions and have their grievances 
submitted to private arbitrators;"^*^ state and local governments have for 
many years submitted contract disputes to private arbitrators;^' arbitrators' 
decisions on back pay for Government employees are now enforceable ;"^- 
and the NLRB is developing a principle of deferral to private arbitrators in 
cases where they determined statutory, as well as contractual, claims. "^^ 
Resolution of federal Government contract disputes is one of the few areas 
where private arbitration has yet to be used.^"* 

The rationale for not using private arbitration in Government contract 
disputes does not appear substantive. Arbitration has proven in the com- 
mercial setting to have its promised advantages over more judicial proce- 
dures. There are typically few procedural rules which bind arbitrators. 
Although they have the authority to summon witnesses or require submis- 
sion of books, records or documents, there is no rigid formula for how pro- 
ceedings are to be conducted. Rules of evidence are not deemed necessary to 
prevent prejudicial presentation of evidence. Affidavits are often used to 
simplify the presentation of evidence. 



'Vrf., Vol. 4, at 3; see also n.7 supra. 

^"Bv 1971, approximately ninety-four percent of labor agreements contained arbitration clauses. BNA, Basic 
Patterns in Union Contracts 51:6 (7ih Ed. 1971). 

"Bovs .Markets. Inc. v. Retail Clerk's Union, Local 770, 398 U.S. 235, 252 (1970); United Steelworkers of Ameri- 
ca V. Warrior and Gulf Navigation Co., 363 U.S. 574, 581-82 (1960). 

'"See 5 U.S.C. §7301, Exec. Order 11491 (1969), 39 U.S.C. §1207 (1970). 

"District of Columbia v. Bailey, 171 U.S. 161 (1898); County of Middlesex v. Gevyn Construction Corp., 450 
F.2d 53 (1st Cir. 1971); Cary v. Long, 181 Cal. 443, 184 P. 857 (1919); Campbell v. City of .New York, 244 N.V. 317, 
155 N.E. 628 (1927); see also cases collected in 40 A.L.R. 1370. Authority to arbitrate has in manv municipal cases been 
implied without need for a statute. City of Shawneetown v. Baker, 85 111. 563 (1877); Smith v. Borough of Wilkinsburg, 
172 Pa. St. 121,33 A. 371 (1895). 

'-Washington Post, Nov. 4, 1974 at B13. 

"Sec Isaacson and Zifchak, Agency Deferral to Private Arbitration of Employment Disputes, 73 Collm. L. Rev. 
1383(1973). 

"The Defense Department, however, does allow prime contractors to settle disputes with their subcontractors by 
arbitration. ASPR 23-203 (1974); see Federal Contracts Reports No. 550, "Subcontract Disputes: The Case of the 
Missing Remedy?" (1974); M. Domke, The L.\w a.nd Practice of Commekcial Arbitration, 96-97 (1968). Great 
Britain has authorized arbitration of government contracts since 1925. Greske. supra n.l4, 29 .A.B..A.J. at 16. 



359 

Vol. 34:11 CONTRACTS 9 

Arbitrators are free to seek all evidence which will be helpful in decid- 
ing the dispute and then to determine the relevancy of what they receive. 
They can call on the parties for assistance in researching the law. Hearings 
can be scheduled at the convenience of the parties since no court calendar 
imposes constraints. Arbitrators perform the central role in guiding the 
parties to present the background needed to resolve the dispute. They are 
well-suited for this task as the third party outsiders chosen specifically for 
this purpose by voluntary consent of the two parties. Generally, arbitrators 
will be experts in the area of the dispute, able to use their prior knowledge 
to cut quickly to its heart. ^' Associated with the advantage of flexibility is 
the possibility for greater speed and less cost. The flexible, informal process 
allows rapid dissemination of evidence among the parties. 

Parties who have voluntarily agreed to submit a dispute to a private 
arbitrator normally do so in order to achieve a fast, equitable resolution. 
When the process works as intended, it minimizes ill will between the 
parties. The arbitration process, rather than stressing adversary relation- 
ships, as do current intra-agency dispute procedures, seeks to promote co- 
operation in setting forth evidence and law needed to resolve a dispute. 

These advantages, which have led to widespread use of private arbitra- 
tion in other contexts, would also be advantageous in Government contract 
disputes. The Government and contractors are interested in speedy, equit- 
able, final decisions. It is in both parties' interests not to expend large re- 
sources settling old differences and to avoid long periods of antagonistic 
contact. The similarity of the advantages offered by private arbitration to the 
goals established for the internal agency dispute settlement procedures 
should not be surprising. Internal dispute procedures were intended to be, 
and have often been characterized as, a form of arbitration.^^ The internal 
procedures, however, as we have seen, have often failed to provide the ad- 
vantages because of a combination of bureaucratic self-interest and judicial 
requirements. 

Arbitration could provide a fair yet expeditious alternative process for 
settling such claims. Disagreements could be submitted to local arbitrators at 
the site of the contractor, thus reliving contractors of any need to haggle 
endlessly with interested contracting officers who are restricted by bureau- 
cratic and political constraints or to deal with judicialized boards in Wash- 
ington that have lost their flexibility over the years.^' On the other side of 
the procedural coin, some contractors are reluctant to submit disputes to 
hoards of contract appeals because they feel even the boards lack certain 
elements of due process. ^'^ Although arbitration proceedings lack in a formal 
sense some of the same due process guarantees, contractors might be more 

'*F. AND E. Elkoi Ri, How Arbitration Works (1973); DoMKt, supra n.44, §§20-25, 28-30. 

**Sec, e.g., Anderson, supra n.l4 at 217; Joy, Disputes Clause in Government Contracts, 25 Ford L. Re\ . 11 
^^^56); United States v. Wunderlich. 342 U.S. 98. 100 (1951). 

'Travel time and expenses arc a major deterrent to appealing small claims. Procurement Commission, supra 
"•2, Vol. 4 at 17. 

'"Boards of contract appeals, for instance, have no subpoena powers (except for the AEC) and limited discovery 
'^'s/d., Vol. 4 at 21, 27-8. 



360 



10 FEDERAL BAR JOURNAL (Vol. 34:1 

willing to present their cases in such forums because the deciders would be 
impartial outsiders rather than employees of the opposing Government 
agency/'' Arbitration is certainly not a panacea in cases where contractors 
desire more due process, but it is an alternative that in some cases might 
be desirable to both Government and contractor. 

Submission of Government contract disputes to private arbitrators would 
therefore seem to offer, in many instances, a desirable alternative to the 
normal contracting officer or board of contract appeals method of resolu- 
tion.^" A number of legal and practical problems with the use of arbitration, 
however, first deserve examination. Government procurement officials have 
been reluctant to agree to such procedures because of a long line of Comp- 
troller General decisions that have held that the United States cannot sub- 
mit to contract arbitration without explicit statutory authority. The weakness 
of the legal argument against Government arbitration in the Comptroller 
General decisions, as will be discussed next, indicates that change in General 
Accounting Office policy is warranted. Beyond this basic question lie pos- 
sible problems with (a) the ability of courts to order the Government to 
arbitrate, (bythe standard of review that would be used by courts in appeals 
from decisions of private arbitrators, and (c) loss of uniformity of decision 
once Government contract appeals are resolved by arbitrators. 

Is Arbitration By The Government Legal? 

Unconstitutional Vesting of Judicial Power 

Much of the concern about the legality of arbitration by the Federal 
Government can be traced to one very old Federal Circuit Court decision. 
The court held in United States v. Ames'^^ that the Secretary of War ex- 
ceeded his authority when he authorized a United States Attorney to agree 
to arbitrate a dispute concerning damage to Government land. The court 
apparently based its decision on constitutional grounds, reasoning that no 
government official can create judicial power anywhere except in a court 
established under Article III: 

All judicial power is by the constitution vested in the supreme court, and such 

inferior courts as congress may, from time to time, ordain and establish. Const. 

U.S. art. 3, sec. 1. No department nor officer has a right to vest any of it elsewhere; 

and it has been questioned even if congress can vest it in any tribunals not organized 

by itself (citations omitted).'^ 

Since the proposition that the Constitution prohibits exercise of judicial 
power by any body other than Article III courts has been discredited since 
Ames,^-^ its holding seems to have no validity today. If Ames were still good 



''As the Procurement Commission, supra n.l2, Vol. 4 at 3, pointed out, "the board members are appointed by the 
agencies and must depend on them for career advancement;" contra, Gantt & Burg, supra n.25 at 180. 

"Use of flexible alternative disputes settlement procedures is consistent with the general philosophy of the Pro- 
curement Commission, supra n.l2. Vol. 4 at 19-20. 

''United .States v. Ames, 24 F. Cas. 784 (No. 14,441) (C. CD. .Mass. 1845). 
'-7J. at 789. 

''E.g.. Reconstruction Finance Corp v. Bankers Trust Co., 318 U.S. 163 (1943); Sunshine Anthracite Coal Co.. v. 
Adkins, 310U.S. 381 (1940). 



361 

Vol. 34:1] CONTR.-\CTS 11 

law, its apparent constitutional holding would prevent even Congress 
through specific statutory authorization from permitting Government officers 
to agree to arbitrate. Since legislation has purported to authorize arbitration 
by the Government in certain specific instances,'^ it seems that Congress 
did not feel the apparent constitutional rule of Ames was sound. 

Instead of being used as a bar to arbitration by the Government today, 
Ames should more properly be viewed as an example of the general nine- 
teenth century judicial attitude disfavoring arbitration, even by private 
parties. Indeed, a somewhat later nineteenth century Supreme Court deci- 
sion. United States v. Farragut,'"'" upheld arbitration by the Federal Gov- 
ernment where the lower court had agreed to refer a pending suit to arbi- 
trators whose decision would become the judgment of the court. Although the 
issue of the authority of the Government to submit to arbitration was not 
discussed in detail in Farragut, its holding that the arbitration was valid 
seems rather authoritative not only on the constitutional issue, but also on 
the issue of whether arbitration requires specific statutory authority. 

Specific Statutory Authority 

Although the Constitutional objection to Government arbitration of 
contract disputes is rather clearly no longer sound, there remains the ques- 
tion of whether specific statutory authorization is necessary. The lack of 
statutory authority has been one of the arguments relied on by the Comp- 
troller General during this century to hold arbitration illegal. ^^ It is well 
established that the head of an executive department has, incident to his 
authority to run his department, the authority to handle contract disputes. ^^ 
This authority extends to the settlement of contract disputes by compromise 
or through the normal dispute process. In the absence of any statute pro- 
hibiting arbitration by the Government, this authority of the agency head to 
handle and settle contract disputes certainly should . obviate the need for 
specific legislation permitting arbitration. 

The Comptroller General has argued that the existence of three statutes 
explicitly authorizing the Government to arbitrate in certain specialized 
cases makes clear a general requirement for such legislation.^® Such an 
argument is overstated with respect to the Suits in Admiralty Act and the 
Public Vessels Act. Both statutes authorize certain high Government officials 
^0 "arbitrate, compromise, or settle" certain claims arising in admiralty. 
The Government officials named had not previously had the authority to 
compromise or settle such specified claims, nor to submit them to arbitration, 
therefore, in authorizing the officials to handle these claims, it was only 



''Statutes cited n. 58 infra. 
"89 U.S. (22 Wall) 406 (1874). 

''See, e.g., 32 Comp. Gen. 333 (1953); 19 Comp. Gen. 700 (1940). 
''See n.l5 supra. 

'*32 Comp. Gen. 333, 335 (1953). The statutes are: Suits in Admiralty Act, 46 U.S.C. §749 (1970); Public 
^fsscls Act, 46 U.S.C. §786 (1970); Contract Settlement .Act of 1944, 41 U.S.C. §1 13(e) (1970). Also, the Foreign 
ssistance Act of 1961 contams a provision permitting arbitration of claims against the .Agency for International Devel- 



Piient arising out of the foreign investment guarantv program. 22 U.S.C. §2395(i) (1970). 



362 

12 FEDERAL BAR JOURNAL (Vol. 34:1 

natural for Congpcss to include the authority to arbitrate. By contrast, the 
authority of the head of an executive department to handle and settle con- 
tract disputes is not based on any particular statute, but rather on well 
established practice and judicial expression.^'' There has been no occasion 
so convenient for Congress to include a specific authorization of arbitration 
for general contract disputes. The specific inclusion of arbitration authority 
in the admiralty claim statutes cannot be viewed as an implicit determination 
that specific authority is required in the case of normal contract disputes. 

The third statute authorizing arbitration, the Contract Settlement Act 
of 1944,^*^ deals with cases of a type which the military departments already 
had general authority to settle. However, the legislative history of this Act 
indicates that Congress never considered whether or not such a specific 
statutory authorization was required to allow arbitration.''' The only 
mention of the arbitration provisions in the legislative history is in letters 
from the American Arbitration Association supporting the use of arbitra- 
tion" and the Attorney General opposing it.^-^ Neither letter dealt with 
the issue of whether specific statutory authorization would be required. The 
AAA proposed that the Act make arbitration available at the option of the 
contractor in all cases. Since it is clear that legislation would be required to 
force a Government agency to give contractors an option of arbitrating, the 
AAA's proposal cannot be taken as an indication that legislation is necessary 
merely to allow a Government agency to arbitrate. Although the Act, as 
passed, merely gave the Government agencies the option of allowing the 
contractor to arbitrate, this difference from the original AAA proposal is 
probably due to the uncertainties and compromise inherent in the legislative 
process. There is no indication in the legislative history that Congress felt 
this Act was required to legitimate arbitration. 

In summary, none of the three statutes specifically authorizing arbitra- 
tion by the Government should be taken as an expression of congressional 
intent that specific statutory authorization is necessary before Government 
officials, who clearly possess the authority to settle contract disputes, may 
submit such disputes to arbitration. 

Statutes 

Three other Federal statutes have been relied upon by the Comptroller 
General to deny the validity of arbitration by the Government. Title 31, 
Section 672, prohibits payment of expenses connected with any commission 
or inquiry, other than courts martial or military courts of inquiry, unless 
special appropriations have been made. Title 31, Section 673, prevents public 
funds from being used to pay expenses of "any commission, council, board, or 
other similar body" unless the body "shall have been authorized by law." 



''Sec n. 15 supra. 
""Sec n.58 supra. 

'•'Hearings on S. 1268, S. 1280, and S.J. Res. 80 Before Subcomm. of the Senate Comm. on Military Affairs, 78th 
Cong., 1st Scss. (1944) (hereinafter cited as 1944 Hearings]. 
"■1944 Hearings, pt. 6 at 435-443. 
"Ud. at 522-29. 



363 



Vol. 34:1) CONTRACTS 13 

For a time these statutes were invoked by the Comptroller General to dis- 
allow payments for the expenses of arbitration.^"* Such an interpretation of 
these late 18th and early 19th century statutes is inconsistent with modern 
practice. So interpreted, the statutes would prevent the payment of expenses 
of boards of contract appeal or most special advisory bodies, which are com- 
monly used in the executive branch although seldom officially authorized by 
Congress. Fortunately, the Comptroller General has retreated from so ex- 
pansive an interpretation. He has taken the position that it is sufficient for 
boards or commissions to be authorized implicitly by general statutes author- 
izing executive agencies to carry out their activities. ^^ 

The third statute that the Comptroller General still appears to rely on 
to disfavor arbitration is the Budget and Accounting Act.^^ The Act provides 
that "all claims and demands whatever by the Government of the United 
States or against it . . . shall be settled and adjusted in the General Account- 
ing Office."^' The Comptroller General has argued that arbitration of a 
claim against the Government effectively ousts the GAO of its statutory juris- 
diction to settle claims. Although strangely similar to the now discredited 
doctrine that arbitration is unconstitutional because it ousts Article III courts 
of their jurisdiction, the Comptroller General has never disavowed this 
position. This argument would also apparently prohibit the practice of 
allowing contractor claims to be decided by agency boards of contract appeals 
whose decisions are not, short of fraud, subject to GAO challenge in the 
courts. 

Although the role of the GAO as a reviewer of agency contract settle- 
ments was at one time clouded, ^^ the Supreme Court made it explicit in 
S&E Contractors: 

Since the AEC withheld payment solely because of the views of the Comptroller 
General and since he had been given no authority to function as another tier of 
administrative review, there was no valid reason for the AEC not to settle with 
petitioner according to its earlier decision.^' 
Although his lengthy dissent disagreed on other grounds, Justice Brennan 
carefully reviewed the legislative history of the Wunderlich Act and found 
"GAO's attempt to obtain the power of binding review over disputes deci- 
sions was [a] failure. "^^ The clear denial of GAO review authority renders 
this final objection of the Comptroller General insubstantial. 



"SComp. Gen. 417(1925). 

"40 Comp. Gen. 478 (1961); 22 Comp. Gen. 140, 143 (1942). 

'*31 U.S.C. §§41-56, 71 (1970); 8 Comp. Gen. 96, 97 (1928). 

*'31 U.S.C. §71 (1970). 

"See Braucher, supra n.l4 at 478, 489. 

"S. Sl E. Contractors v. United States, supra n.l at 10. 

'°Id. at 55. The separate question of the judicial scope of review over decisions by private arbitrators in Government 
contract cases will be discussed in/ra notes 78-88. The argument in the text here is that the broad Budget and .Accounting 
Act language should not be construed to prohibit private arbitrators, rather than the GAO, from deciding contract dis- 
putes, and not necessarily that the S&E holding that the GAO cannot in any way challenge a board of contract app>eals 
decision would also apply to decisions of private arbitrators. 



364 



14 FEDERAL BAR JOURNAL [Vol. 34:1 

Precedent Supporting Arbitration 

Not only is there an absence of persuasive authority for the proposition 
that arbitration by the Government is illegal, but there also exists substantial 
modern authority for the opposite conclusion. In George J. Grant Construc- 
tion Company v. United States,^ ^ the Court of Claims held that a contractor 
could not seek judicial relief against the Government in a contract dispute 
when it had failed to pursue the arbitration remedy specified in the contract. 
The Court analogized arbitration to the normal contracting officer and 
board of contract appeals disputes procedure and rejected the argument that 
the arbitration provision vs^as illegal. Speaking of the standard "disputes" 
article, the Court wrote: 

That article provides that, in case of dispute, the decision should be made by the 
contracting officer, subject to the contractor's right to appeal to the head of the 
department, whose decision should be final. That is a sort of arbitration, albeit by 
agents of one party to the contract. Vet, it violates as completely as arbitration by 
third persons, as provided for in the instant contract, v^^ould violate, any doctrine 
that Congress has consented to have decisions made against the Government only 
in the Court of Claims.^^ 

Another argument in support of the legality of arbitration may be de- 
rived from a series of Comptroller General decisions. They have held that 
although the Government may not submit the issue of 'iiability" or the 
existence of a "legal right" to private arbitrators, they may be allowed under 
a contract clause to "appraise" the amount of money owed to or by the 
Government, provided the legal obligation is derived from another portion of 
the contract. ^-^ There is little basis in policy or logic for a distinction between 
"appraisal" and "arbitration" in a consideration of the arguments discussed 
above as to the necessity for specific statutory authorization. Indeed, the 
"jurisdiction" of the General Accounting Office (or of the Courts) seems to 
be no less encroached upon by allowing private arbitrators to determine the 
extent of liability than by allowing the same arbitrators to determine the 
existence of the liability. The Comptroller General's admission that "ap- 
praisal" is proper should cause his arguments against the legality of "arbi- 
tration" to be taken less seriously. 

Thus, the only remotely recent court decision on this issue supports the 
legality of arbitration; and even some decisions of the Comptroller General 
can be used to argue for this position. Although scholarly comment on this 
issue is both sparse and somewhat dated, it unanimously agrees on the 
legality of arbitration by the Government. ^^ 

How Would Arbitration Work? 

Even if specific statutory authority is not required before the Govern- 
ment may agree to arbitrate, certain legal uncertainties and troublesome 
policy considerations nevertheless surround the use of arbitration. 



^'109 F. Supp. 245 (Ct. CI. 1953). 

''■Id. at 247. 

^'22 Comp. Gen. 140, 145 (1942); 20 Comp. Gen. 95, 99 (1940). 

^'Braucher, iupra n.l4, .Miami L.Q., supra n.l4. 



365 



Vol. 34:1) CONTRACTS 15 

Orders to Arbitrate 

Agreements between the Government and contractors to arbitrate could 
be made either at the time a dispute arises or prospectively in the original 
agreement as part of the disputes clause. If agreement to arbitrate exists at 
the time of the dispute, no legal impediments to such a resolution will arise; 
but, should the Government balk, despite a contract clause calling for arbi- 
tration, questions of judicial authority to order arbitration become relevant. 
The Federal Arbitration Act ' would apparently make an agreement by the 
Government to submit to arbitration valid except for reasons which would 
render any contract unenforceable. Most any federal procurement contract 
would be ''a contract evidencing a transaction involving commerce, "^^ as 
"commerce" is defined in the Act."^ However, the provisions of the Act pro- 
viding for the issuance of court orders to compel arbitration do not seem to 
fit well in cases of Government contract disputes. Section 4 of the Act pro- 
vides: 

A party aggrieved by the alleged failure, neglect, refusal of another to arbitrate 
under a written agreement for arbitration may petition any United States district 
court which, save for such agreement, would have jurisdiction under Title 28, in a 
civil action or in admiralty of the subject matter of a suit arising out of the con- 
troversy between the parties, for an order directing that such arbitration proceed 
in the manner provided for in such agreement.'^ (Emphasis added.) 
In Government contract disputes in which the amount in controversy exceeds 
Si 0,000, jurisdiction is vested by the Tucker Act exclusively in the Court of 
Claims.'*' Thus, the Federal Arbitration Act does not itself grant, in cases 
involving more than $10,000, any court the right to issue an injunction com- 
pelling the Government to arbitrate. However, a plausible argument can be 
made that the Court of Claims has the power, under the All Writs Act,^^ to 
issue orders enforcing an arbitration agreement which has been rendered 
substantively valid by the Federal Arbitration Act. If the Court of Claims did 
not issue an order compelling the Government to arbitrate, the contractor 
would be left to pursue his remedy via the contracting officer and board of 
contract appeals. At that point, if the case eventually came before the 
Court, it would be in a significantly different posture than the Federal Arbi- 
tration Act would seem to require when it declares the arbitration clause to 
be valid in a substantive sense. The All Writs Act would seem to be the 
appropriate authority for the Court of Claims to prevent such interference 

"■'9 U.S.C. §1 etseq. (1970). 

^*The Act provides in pertinent part: "A written provision in ... a contract evidencing a transaction involving 
fommerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to 
fXrforiti the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy 
arising out of such a contract, transaction, or refusal, shall be valid, invocable, and enforceable, save upon such grounds 
3s exist at law or in equitv for the revocation of any contract." 9 U.S.C. §2 (1970). 

""Commerce ' is defined as: "... commerce among the several States or with foreign nations, or in any Territory 
of the United .States or in the District of Columbia, or between any such Territory and another, or between any such 
Territorv and any .State or foreign nation, or between the District of Columbia and any Slate or Territory or foreign 
"ation ..." 9 U..S.C. §1 (1970). Thus, practically any Federal procurement contract would constitute a "contract 
evidencing a transaction involving commerce." 

'"9 U.S.C. §4(1970). 

'"28 U.S.C. §§1346(a)(2), 1491 (1970). 

"'28 U.S.C. §1651 (1970). .Section 1651(a) provides: "The Supreme Court and all courts established by Act of 
C^ongress mav issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages 
3nd principles of law." 



366 



16 FEDERAL BAR JOURNAL [Vol. 34:1 

with its jurisdiction by ordering arbitration. Furthermore, since such an order 
would run against an executive agency, it would be in the nature of a writ of 
mandamus, which is clearly authorized in appropriate cases by the All 
Writs Act.*' 

In the only instance in which the Court of Claims has dealt with this 
issue (albeit in a dictum), it indicated a clear belief that the Government 
could not be compelled to fulfill a contractual commitment to arbitrate. In 
Aktiebolaget Bofors u. United States^^ the court dismissed an argument of a 
contractor on the ground that the Government could not be compelled to 
arbitrate. He had contended that the refusal of the Government to arbitrate 
pursuant to a contractual provision gave rise to a cause of action which 
would start the applicable statute of limitations, which had already run on 
the underlying contractual cause of action, running again. The Court did not 
reach the issue of the validity of the arbitration clause, but assumed arguendo 
its validity: 

In the absence of special circumstances such as thai one has been misled, to his 
damage, by the repudiation of an agreement to arbitrate, the only effective judicial 
remedy for such a refusal is a decree for specific performance. That remedy is not 
available against the United States since it has not consented to such suits."*^ 
The court in Bofors seemed to feel that the difficulty in compelling the 
Government to arbitrate arose not from the lack of a statute giving the Court 
of Claims the explicit authority to issue orders compelling arbitration, but 
rather from the fact that the Government had not "consented" to be a 
defendant in an action to compel arbitration. This sovereign immunity argu- 
ment ignores the common sense interpretation that by entering into a con- 
tract containing an arbitration provision, the Government effectively consents 
to be sued, not merely on an action to enforce an arbitral award, but also on 
an action to compel arbitration. This argument has been accepted by state 
courts in rejecting the contention of state governments that they could not be 
compelled to arbitrate pursuant to contractual provision,*"* but the paucity 
of arbitration decisions in Federal Government cases leaves some doubt about 
the enforceability of Federal agreements to arbitrate. 

Standard of Review 

What would happen should one of the contracting parties be unhappy 
with an arbitral decision? Presumably, the dissatisfied party would seek 
judicial relief from the decision in a federal court. *^ In this situation, it is 

"'See Territo v. United States 170 F. Supp. 855 (D. NJ. 1959) (dictum), appeai dismissed, 358 U.S. 279, motion to 
reinstate dented. 359 U.S. 963; Eng. v. Acheson, 108 F. Supp. 682 (DN.Y. 1952) (dictum). But cf Borah v. Biddle Hi 
F.2f 278 (D.C. Cir. 1944), cert, dented, 323 U.S. 738. 

"153 F. Supp. 397 (Ct. CI. 1957). 

"Id. at 399. 

""Watkins v. Department of Highways of the Commonwealth of Kentucky, 290 S.W.2d 28 (Ky. App. 1956); cf. Dor- 
mitory Auth. of State of New York v. Span Electric Corp.. 18 N.Y.2d 1 14, 271 N.Y.S.2d 983, 218 N.E.2d 693 (1966). 

"'If the Government is unsatisfied with an arbitral award, it is unclear whether it would be allowed to appeal- 
S & E Contractors v. United States, supra n.l. held that the Government could not appeal a decision of a board of con- 
tract appeals. The lack of clarity in the rationale for Justice Douglas' majority opinion makes it difTicuit to apply S ir £'^ 
reasoning to arbitral awards. However, the opinion relied on the words of the existing dispute clause, td. at 9, and on the 
unfairness of the procuring agency's final opinion being challenged by another Government agency, id. at 13-14. Given an 
amended disputes clause allowing less than "final and conclusive" arbitration and a decision, not by the agency, but by 
independent arbitrators, the Court might look more favorably upon Government appeals. 



367 

t 

I Vol. 34:1] CONTRACTS 17 

i 

unclear what standard of review the court should apply. The standard most 
likely to result in the affirmance of the arbitral award is that provided by the 
I Federal Arbitration Act.***^ If this statute is deemed applicable to arbitration 
by the Government,*^' the award could be vacated only on one of several very 
narrow grounds, including fraud, partiality, or misconduct or actions beyond 
the authority of the arbitrator. '^^ Should this standard be deemed applicable, 
the award of arbitrators would be much more difficult to upset than a deci- 
sion by an agency board of contract appeals. Under the Wunderlich Act,***' 
such decisions may be reversed if they involve findings of fact not supported 
by substantial evidence or erroneous interpretations of law.'^^ As previously 
discussed, the Federal Arbitration Act would seem, by its terms, to apply to 
arbitration by the Government of disputes arising under a contract involving 
"commerce;" however, the Act's provisions for enforcement of an agreement 
to arbitrate do not appear to contemplate the Government as a party. 

The Wunderlich Act is itself arguably applicable to an arbitral decision 
involving the Government. However, as in the case of the Arbitration Act, 
it seems unlikely that this issue was considered by the drafters. The section 
of the Act dealing with review of findings of fact applies to ''any decision of 
the head of any department or agency or his duly authorized representative 
or board in a dispute involving a question arising under such contract.'"" 
The question faced here is whether the words "his duly authorized repre- 
sentative or board" would be interpreted to include a panel of arbitrators, 
one or more of whom may have been chosen by the agency. The second part 
of the Wunderlich Act, dealing with questions of law, applies to the "deci- 
sion of any administrative official, representative or board. "^^ Again, the 
question arises whether the drafters intended the reference to "administra- 
tive . . . representative or board" to apply only to Government-employed 
personnel, or, more generally, to any panel. 

A third standard of review is also possible, namely that the court would 
find neither the Federal Arbitration nor Wunderlich acts applicable and 
grant a de novo review of an arbitral award. Arbitration would clearly be 
intended as an expeditious substitute for judicial determination of a dispute, 
and, in the absence of Congressional direction of how to view such proce- 
dures, the courts might determine that it is the Government's duty to con- 
tractors to make available at some point full due process guarantees. Such 
procedures could be provided by de novo review either in the court or through 
remand to a board of contract appeals. 

Much of the unpredictability of judicial standards of review might be 
cleared up in the Government/ contractor agreement to arbitrate. Relying m\ 
the basic contract principle that parties, including the Government, can 

"'See n.75 supra. 

"See notes 68-77 supra. 

»*9U.S.C. §10(1970). 

"41 U.S.C. §§321-22(1970). 

■^The Wunderlich Act has been construed to prevent the Court of Claims from engaging in a de novo review of 
findings of fact by agency boards of contract appeals, at least where such boards provide trial-type procedures. United 
States V. Bianchi & Co., supra n.27. 

"41 U.S.C. §321 (1970). 

«41 U.S.C. §322 (1970). 



368 



18 FEDERAL BAR JOURNAL (Vol. 34:1 

agree to be bound by the decision of a designated person, the Government 
and contractor could specify the degree of finality to be given the arbitral 
aw^ard.''^ If a court did not find such an agreement contrary to either the 
Federal Arbitration or Wunderlich acts, it would reviev^ the arbitral decision 
in light of the guidance in the parties' agreement. Without any past experi- 
ence in judicial review of arbitrated Government claims, however, the finality 
issue remains an impediment to both Government and contractor willingness 
to use such procedures. 

Loss of Uniformity 

One possible disadvantage of using arbitrators might be a loss of uni- 
formity in Government procurement decisions. The boards of contract ap- 
peals, especially the ASBCA, have over the yesirs been able to elucidate many 
areas of procurement law and establish recognized precedents. That uni- 
formity might be lost if arbitrators, who either wrote limited opinions or no 
opinions at all, decided many disputes. 

This disadvantage is somewhat lessened by the predominance of factual, 
rather than legal, questions in Government contract disputes. The Com- 
mission on Government Procurement found that disputes brought before the 
boards were essentially factual, with most involving specifications, contract 
changes, or default terminations.''^ Such factual disputes require little expo- 
sition of overriding principles of law. Rather, understanding of the particular 
procurement and commercial practices involved must be applied to sort out 
the facts. It is such expertise that specially selected arbitrators can be par- 
ticularly useful in providing.''^ 

In some basically factual disputes between Government and contractors, 
it may be desirable to have arbitrators who need not justify their decisions in 
written opinions. As the Navy cases demonstrate, claims based on large 
value, long-running contracts can involve complex factual determinations and 
immense volumes of data and records. In such cases, the basic facts that 
establish the extent of validity of the claim may be clear, but precisely sub- 
stantiating each portion of the claim in light of the mass of records may 
require inordinate effort and have minimal precedential value. As one com- 
mentator has said of the disputes involved in many Government contract 
cases: 

[T]hcre may be a legitimate need for a method of dispute settlement using a simple 
jury verdict or statement of award approach with covert premises that will not lead 
to confusing precedents but which perform justice in individual situations.^* 
Not all disputes would be well suited for such forms of resolution; some will 
involve important principles of law; others will depend on one crucial factual 
element whose interpretation, a mixed question of fact and law, will be a 
significant precedent. The current dispute procedures at the board of con- 



"WiLUSTON, Contracts, Vol. 3, §§794-803 (1936); Corbin, Contracts, Vol. 3A, §652 (1960); see also Shedd. 
supra n.8 at 43-44. 

** Procurement Commission, supra n.l2. Vol. 4 at 15. 

'^Frenzcn, supra n.8 at 64-70, Tinds that private parties arc most likely to make use of commercial arbitration 
when factual questions predominate and legal or policy questions are not essential to resolution of the dispute. 

**Id. at75.n.91,75-77. 



369 



Vol. 34:1) CONTRACTS 19 

tract appeals level, however, are often unable to supply a flexible resolution 
procedure when it would be appropriate, because of the extent to which they 
have been judicialized. 

Conclusion: A Proposal 

The -time has arrived to give private arbitration an opportunity to prove 
itself as a desirable means of resolving Government contract disputes. Al- 
though great dissatisfaction has been expressed with existing dispute proce- 
dures, no real changes have been made in recent years. In 1972 the Commis- 
sion on Government Procurement made serveral suggestions for improving 
disputes settlement: informal conferences at a level higher than the contract- 
ing officer to review decisions of contracting officers adverse to the contractor, 
regional small claims boards to resolve disputes involving $25,000 or less, and 
direct access to the courts for contractors not desiring to process their claims 
through the boards of contract appeals.''^ These suggestions were made to 
cure many of the same problems of inefficiency in the present system for 
which private arbitration has been advanced as a solution here. Each repre- 
sents an attempt to add some flexibility to the existing dispute procedures, to 
expedite resolution and to reduce costs of litigation. Each solution has run 
into resistance from various parts of the executive branch, and none has 
been adopted. 

No attempt has been made here to compare the merits of these sug- 
gestions with those of private arbitration. Any attempt to select the best over- 
all dispute settlement procedures would entail detailed descriptions of the 
procurement process beyond the scope of this article. It is unlikely, however, 
that any one procedure would be best suited for all disputes. The apparent 
promise of private arbitration argues for Government experimentation. Such 
experimentation could provide empirical evidence on the efficacy of such 
procedures that would be useful in the future as the Government slowly re- 
organizes its dispute procedures. 

The GAO should reverse its position on arbitration, and Government 
procurement agencies should encourage their contracting officers to suggest 
private arbitration to contractors. If the contracting officer and contractor 
are having difficulties that are hindering timely issuance of a contracting 
officer's decision, or if such a decision has been issued, but the contractor is 
unhappy about the prospect of processing his claim through a board of con- 
tract appeals, the two parties may find it advantageous to submit their 
oispute to private arbitrators. 

Selection of disputes that would be amenable to arbitration would be 
'^ade on a case-by-case basis. It would seem most likely that factual disputes 
oest resolved by persons with expertise in the commercial practices at issue 

Procurement Commission, supra n.l2, Vol. 4 at 1-4, 11-29. An optional non-final agency review, similar in 

^ pose to the Commission's suggested informal review, was also proposed by Schultz, Wunderlich Revisited: New Limits 

J^°^cial Review of Administrative Determination of Government Contract Disputes, 29 Law & Contemp. Prob. 

• 30, 134 (1964). Another approach that would allow boards of contract appeals to regam their flexibility has been 

also^'s^ ^y Speaor, supra notes 12 and 28. He would rewrite the disputes clause to allow de novo judicial review. See 

achter, supra n.l7 at 378-79 for recommendations aimed at increasmg the quasi-judicial nature of the boards. 



370 

20 FEDERAL BAR JOURNAL [Vol. 34:1 

would be the types of disputes best suited for referral to private arbitrators. 
Standard procedures for commercial arbitration could be used. Three person 
panels would seem best suited for large, complicated claims, but one person 
panels might prove acceptable in smaller or simpler cases. Because there 
would be agreement at the time of the dispute that arbitration was desired, 
no problems with enforcement of prior agreements to arbitrate would arise. ''^ 
Although the degree of finality that would attach to the arbitrator's decision 
would be questionable, '''' the parties could weigh that problem. Eventually, 
an aggrieved party in such an arbitration would proceed to the Court of 
Claims where the scope of review would have to be clarified. In the interim, 
as long as both parties remained satisfied with arbitral awards, no need 
would arise to resolve this legal issue. '^ 

No legislative changes in procurement laws would be necessary for 
agencies to begin experimenting with use of private arbitration. Nor would 
it seem necesury for adoption of revised contract disputes clauses in new 
contracts before arbitration could be given a trial. Contractors would agree 
with the Government to amend existing disputes clauses at the time it was 
decided to submit a dispute to arbitration.'^' Arbitration would be substi- 
tuted for the dispute procedures outlined in existing contract clauses. Strong 
leadership, however, might be required in many agencies to encourage pro- 
curement officials to use private arbitration. Although arbitration was ex- 
plicitly authorized for resolving World War II contract claims, it was rarely, 
if ever, used.'^- The long-standing opposition of the Comptroller General 
to private arbitration of contract claims has made procurement officials wary 
of this alternative. 

If a sizeable number of contract disputes were resolved by arbitration, 
evidence would be accumulated on whether arbitration expedited settlements 
and provided fair resolution of disputes, and thus supplemented existing pro- 
cedures that have on many occasions failed to fulfill those twin goals. Guide- 
lines could be established to help Government procurement officials deter- 
mine the disputes most likely to benefit from such resolution. 

It is in the best interest of both the Government and its contractors that 
a quick and efficient remedy exist for resolving contract disputes. Arbitration 
has proven highly successful as a means of resolving disputes in other con- 
texts. It is high time that antiquated rulings against use of arbitration in 
Government contract cases be discarded and this modern dispute settlement 
tool be employed. 



"Sec notes 68-77 supra. 
"Sec notes 78-86 supra. 

'""An alternative to private arbitration that avoids some of the problems of enforceability and scope of review, and 
that might be especially useful for large, long-standing claims such as the Navy's, would be for the agency head to ap- 
point a specially selected, distinguished panel as his "designated representatives" to resolve claims. This panel wouW 
substitute for either the coniraaing ofTiccr or board of contract appeals. It would have many of the same advantages as 
private arbitration, see notes 38-43; but, because it was set up as the agency head's designated representative, it should 
avoid the criticism leveled by the GAO at truly private arbitration. 

""Revision of ASPR and Federal Procurement Regulation dispute clauses, n.l7 supra, would probably be required 
to give contracting officers the authority to enter arbitration agreements. 

'"Braucher, supra n.l4 at 485. 



371 



Reprinted with pernission from Public Contract Law Journal , 
Volune 16, No. 1, pp. 66-93, Copyright 1986 



PUBLIC 
CONTRACT 
LAW 
JOURNAL 



Arbitration: A Permissible or 
Desirable Method for Resolving Disputes 
Involving Federal Acquisition and 
Assistance Contracts? 



Kirby Behre 



Reprinted from the Public Contract Law Journal, Volume 16, Number 1, American 
Bar Association. Published twice a year by the Section of Public Contract Law. 



Copyright © 1986 American Bar Association 



372 



Arbitration: A Permissible or 
Desirable Method for Resolving Disputes 
Involving Federal Acquisition and 
Assistance Contracts? 

Kirby Behre 



373 



Arbitration: A Permissible or 
Desirable Method for Resolving Disputes 
Involving Federal Acquisition and 
Assistance Contracts? 

Kirby Behre* 

I. Introduction 67 
II. Arbitration: Costs and Benefits 70 

A. The Benefits of Arbitration 70 

B. Negative Aspects of the Use of Arbitration 72 

III. Barriers to Arbitration Involving the 
Federal Government 72 

A. Constitutional Barriers 73 

B. Statutory Barriers 74 

1. 31 U.S.C. § 1346 74 

2. 31 U.S.C. § 3702 77 

C. Government Corporations 79 

IV. The Contract Disputes Act of 1978 83 

V. A Comparison of the Contract Disputes Act 
Process with Arbitration 86 

A. Speed 86 

B. Expense 88 

C. Formality 89 

D. Expertness and Independence of the Decision 
Maker 89 

E. Privacy 90 



♦Associate, Pettit 8c Martin, Washington, D.C. B.A., George Washington Uni- 
versity; J.D., Georgetown University Law Center. 



66 



375 

Arbitration: Permissible or Desirable? 



F. Uniformity of Decisions and Precedent 91 

G. Judicial Review 91 
VI. Conclusion 92 



I. Introduction 

Long a subject of scholarly analysis, the issue of whether federal 
entities can or should use binding arbitration to resolve disputes 
concerning federal government contracts deserves thorough re- 
view in light of the passage of the Contract Disputes Act of 1978 
(the CDA).' That Act provides a unified system for resolving dis- 
putes involving federal acquisition contracts. This article will com- 
pare binding arbitration to the CDA dispute resolution system and 
determme if arbitration is a permissible and desirable substitute for 
the latter. 

Before 1978, the general rule was that, absent specific statutory 
authority, government agencies could not be bound by agreements 
to arbitrate while government corporadons could. ^ This is a strik- 
ing departure from the general judicial climate of the last fifty 
years w^hich has consistently favored the use of arbitration. Pre- 
vious works have discussed the unique and arguably weak justifica- 
tions for the federal prohibition.^ Most observers have concluded 
that the barriers to the use of arbitration are surmountable.^ Some 
have predicted a dramatic increase in the use of arbitration in the 
government contract setting as those barriers are whittled away.^ 



1. 41 U.S.C. §§ 601-613 (1982). 

2 . See Cog2Ln, Are G ovem merit B odies Bound by A rbi (ration Agreements .? , 2 2 A rb . J . 
151, 152 (1967); Braucher, Arbitration Under Government Contracts, 17 Law & 
CONTEMP. Probs. 473, 485 (1952); Note, Authority of Government Corporations to 
Submit Disputes to Arbitration, 49 Collm. L. Rev. 97, 97-98 (1949); "^^olt. Arbitration 
and Government Contracts, 50 Yale L.J. 458, 462 (1941); see also infra at 79-83. 

3. See Hardy &: Cargill, Resolving Government Contract Disputes: Why Nut Arbi- 
trate?, 34 Fed. B.J. 1, 8-10 (1975); Katzman, Arbitration in Government Contracts: 
The Ghost At the Banquet, 24 Arb. J. 133, 135-36 (1969); Comment, Validity of 
Arbitration Provisions in Federal Procurement Contracts, 9 Mia.mi L.Q. 451, 454—56 
(1951): Braucher, supra note 2, at 474-75; Note, Authority of Government Corpora- 
tions to Submit Disputes to Arbitration, supra note 2, at 97-98; Note, Arbitration and 
Government Contracts, supra note 2, at 462-64. 

4. See, e.g., Hardv Sc Cargill. supra note 3, at 8-14. 

5. See, e.g. , Note. A uthonty of Government Corporations to Submit Disputes to Arbitra- 
tion, supra note 2, at 103. 



67 



376 

Public Contract Law Journal 



Most have simplv assumed that arbitration is preferable to judicial 
settlement.^ Yet arbitration is still used only in isolated instances. 
When Congress passed the CDA it redefined the line, perhaps 
unwittingly, between those governmental entities that could arbi- 
trate and those that could not absent a specific statutory grant of 
power to do so. Because the CDA disputes process is mandatory, 
government corporations covered by the CDA' no longer have 



6. See supra notes 2—4; but see Crowell, Arbitrating Commercial Disputes: More 
Problems Than Promise, 15 Nat'l Cont. Mgmt. J. 1 (1981). 

7. The CDA applies by its terms to express or implied contracts "entered into 
by an executive agency. ..." 41 U.S.C. § 602(a) (1982). The term "executive 
agencv" includes "a whollv owned Government corporation as defined by section 
9101(3) of title 31, . . ." 41 U.S.C. § 601(2) (1982). Section 9101(3) is part of 
the Government Corporation Control Act (hereinafter "the GCCA"), 31 U.S.C. 
§§ 9101-9109 (1982), and lists 13 corporations as wholly owned by the govern- 
ment. 31 U.S.C. § 9101(3)(A)-(M). These wholly owned corporations are: the 
Commodity Credit Corporation, the Export-Import Bank of the United States, 
the Federal Crop Insurance Corporation, Federal Prison Industries, Incorpo- 
rated, the Federal Savings and Loan Insurance Corporation, the Government 
National Mortgage Association, the Overseas Private Investment Corporation, 
the Pennsylvania Avenue Development Corporation, the Pension Benefit 
Guaranty Corporation, the Rural Telephone Bank (until ownership conversion, 
when it becomes a mixed-ownership government corporation), the Saint Law- 
rence Seaway Development Corporation, the Secretary of Housing and Urban 
Development when carrying out duties and powers related to the Federal Hous- 
ing Administration Fund, and the Tennessee Valley Authority. (The application 
of the CDA to the Tennessee Vallev Authority is further limited bv section 4(b) of 
the CDA. 41 U.S.C. § 602(b) (1982).) The GCCA lists 10 corporations as "mixed^ 
ownership" government corporations. These are the National Railroad Passenger 
Corporation (Amtrak), the Central Bank for Cooperatives, the Federal Deposit 
Insurance Corporation, the Federal Home Loan Banks, the Federal Intermediate 
Credit Banks, the Federal Land Banks, the National Credit Union Administration 
Central Liquidity Facility, the Regional Banks for Cooperatives, the United States 
Railwav Association and the Rural Telephone Bank (after ownership conversion). 
31 U.S.C. § 9101(2)(A)-(J) (1982). All total, there are 47 government corpora- 
tions. Comptroller General's Report to Congress, Congress Should 
Consider Revising Basic Corporate Control Laws, (General Accounting 
Office Report No. PAD-83-3, April 6, 1983), Appendix 1. Of the 25 corporations 
not covered by the GCCA, 8 are categorized as predominantly federal by the 
GAO, 4 as mixed federal/private, and 13 as predominantly private. The eight 
predominandy federal corporauons are the Corporadon for Public Broadcasting, 
the Federal Financing Bank, the Legal Services Corporation, the National 
Homeownership Foundation, the Neighborhood Reinvestment Corporation, the 
New Community Development Corporadon, the Solar Energ)' and Energy Con- 
servation Bank, and the United States Synthetic Fuels Corporation. The Inter- 
American Foundation, although not specifically listed under the GCCA; is con- 
trolled by the GCCA because its enabling legislation so specifies. 22 U.S.C. 
§ 290f(t) (1982). The four mixed federal/private corporations are the Consoli- 
dated Rail Corporadon (Conrail), the Northeast Commuter Services Corporation, 
the Securities Investor Protection Corporation, and the U.S. Postal Service. The 



68 



377 

Arbitration: Permissible or Desirable? 



arbitration as an option, at least in the context of acquisition 
contracts/ The CDA not only narrowed the exception to the gen- 
eral prohibition on the use of arbitration, it also made it much less 
likely that a governmental entity falling within the general ban will 
be successful in surmounting the barriers to the use of binding 
arbitration. 

This article discusses why arbitration is generally not available in 
the context of federal government contracts, and whether its lim- 
ited availability is the significant restriction on agencies and gov- 
ernment contractors in light of the new dispute resolution process 
embodied in the CDA. It examines the ability of federal entities to 
arbitrate absent specific statutory authority. It should be noted that 
this article does not discuss labor arbitration, which is an entirely 
different subject, or situations involving state law. State law varies 
and can constitute an additional, insurmountable barrier to ar- 
bitration by federal entities.^ 

Two major questions are answered. First, which federal entities, 
if any, can choose to arbitrate to resolve their contractual disputes? 



13 predominantly private corporations are the Communications Satellite Cor- 
poration (Comsat), the Federal Home Loan Mortgage Corporation, the Federal 
Land Bank Associations, the Federal National Mortgage Association, the Federal 
Reserve Banks, Gallaudet College, the Gorges Memorial Institute of Tropical and 
Preventive Medicine, Inc., Howard University, the National Consumer Coopera- 
tive Bank, the National Corporation for Housing Partnerships, the National Park 
Foundation, the Production Credit Associations and the Student Loan Marketing 
Association. 

8. Section 602(A) of the CDA states, in part, that: 

Unless otherwise specifically provided herein, this chapter applies to any 
express or implied contract . . . entered into by an executive agency for — 

(1) the procurement of property, other than real property in being; 

(2) the procurement of services; 

(3) the procurement of construction, alteration, repair or maintenance of 
real property; or 

(4) the disposal of personal property. 

41 U.S.C. § 602(a)(1982). However, for purposes of this article, the terms "public 
contract" or "government contract" will also encompass nonacquisition contracts 
such as grants, cooperative agreements and financial assistance agreements be- 
tween federal and private entities. All contracts ent*^red into by entities created 
and funded by the federal government are covered. 

9. For example, in a dispute between Amtrak and the state of Illinois, 'the 
Illinois Court of Claims invalidated an arbitration clause in the Amtrak-Illinois 
contract holding that the court itself had sole jurisdiction under state law over all 
contract disputes involving the state. National R.R. Passenger Corp. v. Illinois, No. 
82-CC-2554. slip op. (111. Ct. CI. Sept. 22, 1982), reh'g denied, slip op. (111. Ct. CI. 
Dec. 2. 1983). 



69 



378 
Public Contract Law Journal 



Second, what factors should those entities that can arbitrate con- 
sider when deciding whether to do so? Although the first question 
has been addressed by previous commentators, the existence of 
new judicial and administrative decisions and the passage of the 
CDA give cause to reconsider the question. The second question 
has largely been ignored by previous commentators who appear to 
have assumed that arbitration is generally a desirable alternative to 
judicial setdement. 

This article identifies the costs and benefits of arbitration in 
general. It then discusses the potential constitutional and statutory 
barriers to the use of arbitration by the federal government. Next, 
the characteristics of the CDA process are identified. Those entities 
not covered by the Act are also identified, since they have the ability 
to choose arbitration as a means to resolve their contractual dis- 
putes. Finally, arbitration is compared to the CDA mechanism, and 
the article concludes that the CDA is an acceptable substitute for, 
and in some situations preferable to, binding arbitration. 

II. Arbitration: Costs and Benefits 

Arbitration has been defined as 

a process by which parties voluntarily refer their disputes to an impartial 
third person, an arbitrator, selected by them for a decision based on the 
evidence and arguments to be presented before the arbitration tribunal. The 
parties agree in advance that the arbitrator's determination, the award, will be 
accepted as final and binding upon them.'" 

Arbitration has both benefits and drawbacks which must be consid- 
ered in deciding whether to use it. This section addresses those 
costs and benefits. 

A. The Benefits of Arbitration" 

The relative speediness of arbitration decisions is frequently cited 
as a major advantage. Because of the very narrow scope of judicial 



10. M. DoMKE, DoMKE ON COMMERCIAL ARBITRATION, § 1:01 (rcv. ed. 1983 8c 
1985 Supp.) at 1. 

11. See generally, R. Coulson, Business Arbitration — What You Need to 
Know (2d ed. 1982); Hardy &: Cargill, supra, note 3 at 8-9; Note, Authority of 
Government Corporations to Submit Disputes to Arbitration, supra note 2; Note, Arbitra- 
tion and Government Contracts, supra note 2. 



70 



379 
Arbitration: Permissible or Desirable? 



review applicable to an arbitrator's decision, lengthy appeals are 
largely avoided. Studies of the typical commercial arbitration sug- 
gest that the average time from submission of a dispute to a final 
decision is only sixty days. Of course, how expeditious the arbitra- 
tion process is depends in large part upon the parties. The degree 
of formality in the process, for example, is determined by agree- 
ment of the parties; and expeditiousness usually varies inversely 
with the degree of formality employed. 

A corollary to the relative speed of the arbitral decision is the 
lower cost to the parties resolving their dispute.'^ Because proce- 
dural and evidentiary rules may be relaxed, less time and, there- 
fore, money is spent dealing with them. The limited availability of 
judicial review also results in less money being spent for the case on 
appeal. Again, the parties directly control the process and can 
agree to eliminate the costly elements of the arbitral process. For 
example, the parties may agree to eliminate the use of a transcript 
or to forbid the submission of briefs. Such agreements can make 
the process faster and less costly. From a policy perspective, if 
arbitration is less costly, the promise by the government to use such 
a procedure could encourage more businesses to bid for govern- 
ment supply contracts, since the potential cost of doing business 
with the government would be lower. 

Because arbitrators are chosen by the parties themselves, it is 
likely that the arbitrator in a given case will be an expert in the ^rea 
involved in the dispute. Presenting a case before an expert elimi- 
nates the necessity of educadng the decision maker about the 
issues. Use of an "expert" should also result in a more informed 
decision. '^ 

Arbitration, unlike adjudication, is a private dispute resolution 
system. Because the process does not occur in a public courihouse, 
both parties avoid publicity. It is also less likely that information 
concerning trade secrets or confidential information will be leaked. 



12. Some observers have questioned the assumption that arbitration is cheaper 
than judicial settlement. See Kronstein, Business Arbitration — Instrument of Private 
Government, 54 Yale L.J. 36, 39 n.lO (1944); Crowell, supra note 6, at 6. 

13. Others argue that an expert decision maker who is a specialist in the 
particular area of disputes is actually a drawback. An "expert" is more likely to 
have a closed mind or preconceived notions about certain concepts involved in the 
litigation. Unlike an expert witness, an expert decision maker's bias cannot be 
exposed through cross-examination. 



71 



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Public Contract Law Journal 



B. Negative Aspects of the Use of Arbitration 

Arbitrators are not bound by previous court or arbitration deci- 
sions and they usually do not follow such decisions except in the 
area of labor arbitration. Because of this, parties are less able to 
assess their chances of prevailing. It is thus harder to predict the 
outcome of an arbitration than that of a court case. 

While the ability to choose the arbitrator can result in the parties 
obtaining a person who has a special expertise in the area of 
conflict, it can also result in the selection of a person who is less 
detached and more dependent upon the parties. The parties pay 
the arbitrator's salary. The chance exists that an arbitrator will 
make a decision with an eye toward his role in future disputes 
involving one or both of the parties — that is, an arbitrator's deci- 
sion might be influenced by the desire for future employment by 
the parties. Closely related to this is the frequent complaint that 
arbitrators "split the difference" too often. The desire for future 
employment could tend to produce such results. 

Although the informality of the arbitration process may reduce 
the time and money needed to resolve the dispute, it may also be a 
drawback. "Formalities" help both to protect the due process rights 
of the parties and to assure a decision based upon all the facts. The 
formalities of evidence law, however, can keep relevant evidence 
out. 

While finality of decision is an attractive element of arbitration, 
the limited scope of judicial review virtually eliminates the possibil- 
ity of reversal of an unfavorable decision.''' Simply stated, the 
parties are usually stuck with whatever the arbitrator decides. 

III. Barriers to Arbitration Involving the 
Federal Government 

As noted above, government agencies are generally prohibited 
from submitting disputes to arbitration, while a limited number of 



14. The U.S. Supreme Court in Burchell v. Marsh stated that "[i]f the award is 
within the submission, and contains the honest decision of the arbitrators, after a 
full and fair hearing of the parties, a court of equity will not set it aside for error, 
either in law or fact." 58 U.S. 344, 349 (1854). Also, the United States Arbitration 
Act limits judicial review. See infra note 62. Finally, many arbitration awards are 
made without written opinions, making judicial review difficult. 



72 



381 
Arbitration: Permissible or Desirable? 



government corporations can agree to arbitrate disputes.'- It is 
generally believed that this prohibition applies absent some specific 
statutory authorization to arbitrate.'^ Three statutes specifically 
authorize arbitration of contract disputes involving the govern- 
ment ancT private contractors: the Suits in Admiralty Act,'' the 
Public Vessels Act, '* and the Contract Settlement Act. '^ These three 
statutes-" concern a very small percentage of government acquisi- 
tion contracts. Some believe that the fact that Congress saw it 
necessary to specifically authorize arbitration in these instances 
validates the general prohibition.^* However, most observers since 
the 1940s have viewed the prohibition to be valid only where 
specific statutes forbid arbitration.^^ 

A. Constitutional Barriers 

Although there are apparendy no constitutional barriers to the use 
of arbitration today, the prevailing view in the mid- 1800s was that 
arbitration by the federal government was unconstitutional be- 
cause the use of arbitration improperly vested judicial power in an 
entity that was not an inferior court created by Congress.-^ As 



15. See supra notes 2 & 7 and accompanying text. 

16. See, e.g.. Note, Arbitration and Government Contracts, supra note 2, at 462. 

17. 46 U.S.C. §§ 741-52 (1982). Section 749 provides that 

The Secretary of any department of the Government of the United States . . . 
is, authorized to arbitrate, compromise, or settle any claim in which suit will lie 
under the provisions of sections 742, 744, and 750 of this title. 
46 U.S.C. § 749 (1982). 

18. 46 U.S.C. §§ 78 1-90 ( 1 982). Section 786 states that "[t]he Attorney General 
of the United States is authorized to arbitrate, compromise, or settle any claim on 
which a libel or cross libel would lie under the provisions of this chapter, . . ." 46 
U.S.C. § 786(1982). 

19. 41 U.S.C. §§101 etseq. (1982). Section 113(e) provides that '*[t]he contract- 
ing agency responsible for settling any claim and the war contractor asserting the 
claim, bv agreement, mav submit all or any part of the termination claim to 
arbitration " 41 U.S.C. § 1 I3(e)(1982). 

20. A fourth statute, the Foreign Assistance Act of 1961, contains a provision 
which permits "[c]laims arising as a result of investment guaranty operations [to] 
be settled, and disputes arising as a result thereof [to] be arbitrated with the 

consent of the parties " 22 U.S.C. § 2395(i)(1982). Such disputes could arise 

against the Agencv for International Development. 

21. 32 Comp. Gen. 333, 335 (1953); See Hardy & Cargill, supra note 3, at-l 1; 
Note, Authority of Government Corporations to Submit Disputes to Arbitration, supra note 
2, at 99-100. 

22. See, e.g., Hardy & Cargill, supra note 3, at 11; Note, Authority of Government 
Corporations to Submit Disputes to Arbitration, supra note 2, at 99. 

23. United States v. Ames, 24 F. Cas. 784, 789 (C.C.C. Mass. 1845) No. 14,441. 



73 



382 

Public Contract Law Journal 



courts became more receptive towards arbitration, the argument 
was abandoned.-^ 



B. Statutory Barriers 

1. 31 U.S.C. § 1346 

Section 1346 of Title 31 prohibits the use of federal funds "to 
pay — (A) the pay or expenses of a commission, council, board, or 
similar group, or a member of that group" or "(B) expenses related 
to the work or the results of work or action of that group" unless 
authorized by law." Historically, the Comptroller General has read 
this statute as barring the use of arbitration.-® This reading of 
section 1346 has since been softened somewhat by rulings of the 
Attorney General and the Comptroller General that the use of the 
boards need only to be authorized "in a general way by law," rather 
than specifically authorized, in order to avoid the statutory 
prohibition." This concept of "general" authorization probably 
permits government corporations to surmount the hurdle that 
section 1346 poses. -^ 

There is a second possible basis for exempting government 
corporations from section 1346. That government corporations 
are closer to private entities than to public entities arguably places 
them completely outside the reach of the statute. The National Rail 



24. The decline injudicial hostility towards the use of arbitration culminated in 
the passage of the United States Arbitration Act of 1925. 9 U.S.C. §§ 1-14, which 
rendered arbitration provisions enforceable and outlines the procedures to be 
used. For a review of the history of judicial hostility toward the enforcement of 
arbitration agreements prior to the passage of the United States Arbitration Act, 
see Kulukundis Shipping Co. v. Amtorg Trading Corp., 1 26 F.2d 978, 982-85 (2d 
Cir. 1942). 

25. 31 U.S.C. § 1346(a)(l)(1982) (formedy 31 U.S.C. §§ 672, 673). 

26. 5 Comp. Gen. 417 (1925); see generally Braucher, supra note 2 at 477 (the 
Comptroller General's argument based on section 1346 "has largely been repudi- 
ated . . . but his conclusion has not"). 

27. 27 Op. Att'y Gen. 432, 437 (1909); 40 Comp. Gen. 478, 479 (1961) ("Gen- 
eral or specific authority to perform functions or duties is sufficient to allow 
pavment of the expenses of boards, commissions, etc., if such duties or functions 
can be performed only by such a group or if it is generally accepted that such 
duties can be performed best by such a group"); 22 Comp. Gen. 140. 143 (1942). 

28. Note, Authority of Government Corporations to Submit Disputes to Arbitration, 
supra note 2, at 101-02. (Congress's grant to government corporations of broad 
contracting powers and the power to sue and be sued arguably authorizes, in a 
general way, the use of arbitration.) 



74 



383 
Arbitration: Permissible or Desirable? 



Passenger Corporation (Amtrak) has made precisely this argu- 
ment.*^ 

The better view appears to acknowledge that government cor- 
porations are, in fact, government entities. Amtrak, like all federal 
government corporations, is a creature of Congress which receives 
substantial public funding. Its powers are strictly limited to those 
with which Congress vests it. Any theoretical independence which 
government corporations have is subject to the whim of Congress, 
which can alter the corporate structure or abolish the entity at any 
time. Furthermore, as a creature of Congress, government cor- 
porations are subject to congressional involvement in the contract- 
ing process.^" Given these realities, it is best to view anv agreement 
that a government corporation enters into as an agreement be- 
tween the federal government and another party. Thus, the argu- 
ment based upon the existence of "general" authorization is the 
best ground for avoiding the prohibition of section 1346. 

The legislative history of section 1346 does not specifically 
address the question of use of arbitration by government entities. 
The legislative history does reveal a desire to prevent the expendi- 
ture of public monies on commissions and boards not authorized 
by Congress.^' The intent behind the statute appears to have been 



29. Letter from Christopher M. Klein, Deputy General Counsel. .Amtrak, to 
Kirbv Behre (Aug. 16, 1984). Amtrak views itself as "a private corporation, 
organized under the laws of the District of Columbia pursuant to the Rail Passen- 
ger Service Act. . . .' Id. Because it is a private corporation, the reasoning con- 
tinues, the statutory barriers do not apply to it. Amtrak belie\ es its for-proht status 
and the existence of siiareholders in the corporation support its view. 

30. Congressional attempts to prohibit the United States Syntheiic Fucris C^<r- 
poration (the SFC), a government corporation, from entering into contracts with 
specific producers of svnthetic fuels illustrates the fact rhat governmerit corpora- 
tions, despite their theoretical independence, are only as independent as Con- 
gress permi;s them to be. Congress can reduce that independence at anv time 
without altering the legislation ihat created thecorpcrat!on. The H'?i:.;,eof Reprp- 
sentaiives voted on August 2. 1984. to proliibit the SFC from entering inti* 
contracts for the conidruction of the Union II arid Cathedral Hluris i.irojec::. The 
SFC had already signed letteis of inteni v.iih liie c()nipai:.ie5 in-»olved m 'he 'Mo 
projects, but those letters were no^ legallv binding. 1984 Cong Q. vVf.ilki v Re:' 
1880. The Conference Committee later deleted ihis restriction on SFC's rA.wer 

31. Congressman Livingston, a :nenii)er of ihe House Appropriations Uom- 
mitiee, stated: 

[VVje have been livnig under a new era . . that has establi-hed ihai liie public 
moneys mav be expended not alone under .wuhoritv of law. but also bv "execu- 
tive choice," as illustrated l>v innumer.'hle comniis'sions. '.'Mincil-. iuul board"> 
appointed solelv bv the President. The existence and activitie.- oi' these bcdies 
have made no inconsideral.le drain upon funds aopropr^atr-i 'or speciHi and 



75 



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Public Contract Law Journal 



to prevent the executive branch from using commissions to cloak 
the expenditure of funds for unauthorized purposes. Under this 
reading, arbitration panels would not be prohibited since dispute 
resolution is not an unauthorized activity but a necessary element 
of an agency's power to contract. Despite the fact that arbitration 
panels thus appear to be outside the reach of the statute, section 
1346 continues to be read as prohibiting their use. 

Some observers have suggested that, assuming a prohibition on 
arbitration exists, it can be avoided by paying arbitrators from a 
source other than government funds. ^^ This reading appears to 
ignore the prohibition of section 1346 against use of public monies 
to pay "expenses related to the work or the results of work or action of 
that group."" The phrase "or the results of" appears to prohibit 
the use of government funds to implement the decisions and 
findings of the arbitration board. If the statute does apply to 
arbitration by a government agency, it would seem to prohibit the 
use of public funds both to pay for the expenses of the process and 
to implement the arbitradon decision. 

Despite the Comptroller General's view that section 1346 pro- 
hibits binding arbitration, he has approved payment in instances in 
which arbitrators functioned only as appraisers. ^^ Several Comp- 
troller General decisions have permitted the use of arbitrators in 
situations in which arbitrators did not determine "questions of 
legal liability."'^ 

In a 1940 decision,^® the Comptroller General held that an 
arbitration provision in a contract between the Secretary of War 
and an aircraft contractor was valid because the arbitrator's role 
was limited to determining the appropriate sale price for the con- 
tractor's possible purchase of government-built plant facilities. Be- 
cause the function of the arbitration panel was limited to making 
a factual determination of reasonable value "without imposing 

legitimate functions of government by misapplying the same to expenses of 
junketing about the country and in diverting the services of department em- 
ployees from their proper and lawful occupations. 
55 Cong. Reg. 3833, 3836 (Mar 4, 1909) (statement of Rep. Livingston). 

32. Braucher supra note 2, at 478 (arbitration by private citizens without fee or 
at the contractor's expense); Note, Arbitration and Government Contracts, supra note 
2 at 463 (charging the contractor with the expenses of arbitration). 

33. 31 U.S.C. § 1346(a)(l)(B)(I982)(emphasis added). 

34. See, e.g., 22 Comp. Gen. 140, 145 (1942). 

35. See, e.g., 20 Comp. Gen. 95 (1940). 

36. Id. 



76 



385 
Arbitration; Permissible or Desirable? 



any obligation on the Government," the Comptroller General 
reasoned that use of arbitration was not illegal/' 

The Comptroller General used similar logic in a 1942 opinion/** 
holding that an arbitration provision in a restaurant lease at 
Washington National Airport was valid despite the existence of 
section 1346 (then section 673). The lease provided for a board of 
arbitrators to fix the rental rate upon the renewal of the lease. The 
Comptroller General reasoned that use of an arbitration panel was 
implicitly authorized by law, since the contemplated duties were 
those of appraisers, and it is generally recognized that such a 
determination is best done by an arbitration panel/^ The Comp- 
troller General also relied heavily on the "more important consid- 
eration . . . that under the proposed article any determination [by 
the board] . . . cannot serve to impose any additional obligation on 
the Government," since the lease expressly provided that the re- 
newal terms could be no less favorable than the original terms/® 

The distinction the Comptroller General has chosen to make is 
suspect. An arbitrator functioning as an appraiser does not, strictly 
speaking, decide questions of legal liability; but the result of an 
arbitrator/appraiser's decision is nearly identical to that of an arbi- 
trator who resolves questions of legal liability. Both types of arbi- 
trators settle monetary disputes and in so doing require that the 
government either disburse or receive a specific dollar amount. An 
arbitrator/appraiser's valuation is final and binding and in this 
sense does indeed "impose an obligation" on the government — it 
prevents the government from obtaining more money from a 
contractor or from reducing the amount of money it owes a con- 
tractor. 



2. 31 U.S.C. § 3702 

A second potential barrier to the use of arbitration by a govern- 
ment entity lies in the Budget and Accounting Act of 1921.^' 



37. Id. at 99. 

38. 22Comp. Gen. 140(1942). 

39. Id. at 145; see abo 1 1 Comp. Gen. 495, 497 (1932) (expenses not authorized 
because selection of architect and design for federal jails not a duty generally 
recognized as best performed by a commission). 

40. 22 Comp. Gen. 140, 145 (1942). 

41. 42 Stat. 23 (1921) (formerly 31 U.S.C. § 41-56, 71. recodified as amended 
in scattered sections of 31 U.S.C). 



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Public Contract Law Journal 



Section 304 of that Act provides that "the Comptroller General 
shall settle all claims of or against the United States Government/'^- 

This statute gives the Comptroller General jurisdiction over 
disputes involving money due on contracts; however, claims based 
upon tort or breach of contractual obligations are not part of 
section 3702 settlement authority. ^^ Thus, section 3702 should not 
constitute a barrier to the use of another forum to resolve disputes 
that do not involve amounts owed. Yet, it has been interpreted in 
such a way as to raise a barrier to the use of arbitration by agencies. 
The statute has also been interpreted by the Comptroller General 
as inapplicable to most government corporations.^^ 

As for agencies, a 1928 opinion of the Comptroller General^^ 
found that the Budget and Accounting Act of 1921 deprived the 
Department of Commerce of the power to use arbitration because 
the Act gave claims settlement authority to the General Accounting 
Office (GAO), of which the Comptroller General is the head. The 
Comptroller General suggested that the statute's "ample" provi- 
sion of a forum for claims settlement was evidence that Congress 
did not intend to grant such power to agencies. ^^ Another opinion 
in the same year found that where the statute does apply, "there is 
no power or authority in any administrative or contracting officer 
of the Government, by means of a provision in a contract, to 
establish or provide for a different procedtire for the adjustment 
of such claims.^' 

To summarize, whether section 3702 prohibits a governmental 
entity's use of arbitration largely depends on whether the entity is 



42. 31 U.S.C. § 3702(a)(1982). 

43. United States ex rel. Coates v. St. Louis Clav Prod. Co., 68 F. Supp. 902, 
905-06 (E.D. Mo. 1946): accord Dennis v. United States, 20 Ct. CI. 1 19. 120-121 
(1885) {the Treasury Department had GAO's authority to settle claims before 
1921). This distinction rests on the difference between a suit for unliquidated 
damages, not quandftable until proven to the satisfacdon of the factfinder, and a 
suit on account for money due and owing, the amount of which may be ascer- 
tained merely bv arithmetical means. 

44. Comp. Gen. B-190806, .April 13, 1978 (Pension Benefit Guaranty Corp.); 
Comp. Gen. B-1 79464, Marcii 27, 1974 (United States Postal Service and the 
Panama Canal Company); 53 Comp. Gen. 337 (1973) (Federal Housing Author- 
ity). Because government corporations are generalK authorized to settle their 
own claims and to have iheir financial transacdons treated as final, the Comptrol- 
ler General lacks such authority. 53 Comp. Gen. 337, 338 ( 1973) atifti^ 27 Comp. 
Gen. 429 (1948). 

45. 8 Comp. Gen. 96 (1928). 

46. Id. at 9 /-9S\ see also 6 Comp. Gen. 140(1926); 5 Comp. Gen. 417 (1925). 

47. 7 Comp. Gen. 541, 542 (1928). 

78 ~~~~ 



387 
Arbitration: Permissible or Desirable? 



an agency or a corporation. Corporations which can sue and be 
sued or settle their own claims are in no way confined by the statute. 
The statute bars an agency's use of arbitration if the dispute con- 
cerns a claim for money due and owing. For other claims, section 
3702 does not give the Comptroller General jurisdiction and conse- 
quently does not bar arbitration. Of course, section 1346 effectively 
precludes arbitration by agencies in resolving unliquidated claims. 

C. Government Corporations 

That government corporations are excepted from the general 
prohibition on the use of arbitration is supported by several cases 
upholding and enforcing arbitration agreements involving gov- 
ernment corporations. However, none of these cases explicitly 
addressed the question of section 1346's general prohibition. 

In In re Reconstruction Finance Corp.,^^ the Southern District of 
New- York found that an arbitration clause was binding upon the 
Reconstruction Finance Corporation (RFC), a wholly owned gov- 
ernment corporation and statutory successor to the Rubber Re- 
serve Company. The RFC had tried to defeat the claim of a shipper 
of rubber that had contracted with the Rubber Reserve Company 
by urging that the arbitration clause could not be binding upon it 
since it was not an original party to the agreement. The court 
rejected that contention and referred the dispute, concerning 
allocation of the loss for rubber destroyed by enemy action, to 
arbitration. The court found that the "scope of the arbitration was 
not in anv way confined."''^ The district court used the United 
States Arbitration Act^^ as a guide in its decision. On appeal, the 
Second Circuit also invoked the Federal Arbitration Act and 
affirmed the decision to refer the dispute to arbitration. 

Reconstruction Finance Corp. demonstrates that the United States 
Arbitration Act can be successfully invoked with respect to a dis- 
pute involving a government corporation. This case, like the ones 



48. 106 F. Supp. 358 (S.D.N.Y. 1952), affd, 204 F.2d 366 (2d Cir.), cert, den., 
346 U.S. 854 (1953). 

49. Id. at 36 1 . The court also held that the issue of whether the shipper's claim 
was barred by the statute of limitations was a question for the arbitrator. Id. at 362. 
That portion of the decision was later affirmed on appeal. 204 F.2d 366, 369 (2d 
Cir. 1953). 

50. 9 U.S.C. §§ 1 etseq. (1982). 

___ _ 



388 
Public Contract Law Journal 



that follow, implicitly validates the idea that government corpora- 
tions can agree to arbitrate their contractual disputes. 

In George J. Grant Construction Co. v. United States y^^ the Grant 
Construction Company sued the Commodity Credit Corporation^^ 
for delay damages in the construction of three hemp mills. The 
Court of Claims enforced a binding arbitration clause calling for a 
three-person arbitration panel." However, in rejecting the conten- 
tion that Congress "consented to have decisions made against the 
Government only in the Court of Claims,"^'' the court blurred not 
only the distinction between government agencies and govern- 
ment corporations, but also the distinction between arbitration by 
three-person panels and dispute resolution by the contracting 
officer. The court characterized the standard government disputes 
clause (providing for a decision by the contracting officer and an 
appeal to the department head) as "sort of arbitration."" The court 
reasoned that since this "in house" arbitration had been permitted 
by the Supreme Court,^* arbitration by neutral third parties must 
be permitted as well. 

Because of its broad language. Grant Construction Co. could have 
provided the rationale for use of arbitration agreements by gov- 



51. 109 F. Supp. 245 (Ct. CI. 1953). 

52. A predominantly federal corporation as classified by the GAO. See supra 
note 7. 

53. The arbitration clause specified that in the event of any disagreement 
arising under the contract, a three-person arbitration panel would be appointed. 
One member would be selected by each party and the third member selected by 
both parties' arbitrators. Edward E. Meyer Constr. Co. v. United States, 124 Ct. CI. 
274, 290-91 (1953) (contract "substantially identical" with contract in Grant Con- 
struction Co.). 

54. 109 F. Supp. at 247. 

55. Id. The standard disputes clause referred to by the court states as follows: 
ARTICLE 15. Disputes. Except as otherwise specifically provided in this 

contract, all disputes concerning questions of fact arising under this contract 
shall be decided by the contracting officer subject to written appeal by the 
contractor within 30 days to the head of the department concerned or his duly 
authorized representative, whose decision shall be final and conclusive upon the 
parties thereto. In the meantime the contractor shall diligendy proceed with the 
work as directed. 

United States v. Wunderlich, 342 U.S. 98, 99 (1951); United States v. Moorman, 

338 U.S. 457, 459 n.2 (1950). 

56. Citing United States v. Wunderlich, 342 U.S. 98 ( 1 95 1), and United States v. 
Moorman, 338 U.S. 457 (1950). Both cases concern dispute resolution by the 
contracting officer of an agency; however, both cases were explicidy nullified by 
Congress when it passed the Wunderlich Act in 1954, 41 U.S.C. §§321, 322 
(1982). 



80 



389 

Arbitration: Permissible or Desirable? 



ernment agencies as well as government corporations. One con- 
temporary commentator saw the decision as "a beacon" showing 
the bright future for arbitration of government contract disputes." 
Yet the case has since been ignored. ^^ 

The final line of cases suggesting that government corporations 
may agree to arbitrate involves the National Railroad Passenger 
Corporation (Amtrak). In three separate cases, three different 
courts of appeals have enforced clauses providing for binding 
arbitration by a third party under the terms of the United States 
Arbitration Act. 

In National Railroad Passenger Corp. v. Missouri Pacific Railroad, ^'^ 
the Eighth Circuit held that a dispute concerning Amtrak's con- 
tractual right to use rail lines owned by a subsidiary of the Missouri 
Pacific Railroad was arbitrable. The court stated that in light of the 
United States Arbitration Act its review was limited to two issues: 
(1) whether an agreement to arbitrate was made, and (2) whether 
there was a failure, neglect or refusal of the other party to perform 
that agreement.^ 

In National Railroad Passenger Corp, v. Chesapeake i^ Ohio Ry. ,*' the 
Seventh Circuit upheld a National Arbitration Panel award direct- 
ing Amtrak to pay C&rO more compensation than specified in their 
contract. This case is noteworthy not only because it upheld the 
imposition of a financial obligation on a government entity by an 



57. Comment, Validity of Arbitration Provisions in Federal Procurement Contracts, 
supra note 3, at 458. 

58. One case, Aktiebolaget Bofors v. United States, 153 F. Supp. 397 (Ct. CI. 1957), 
came close to addressing the issue of whether an arbitration agreement between a 
manufacturer and the Department of Defense was valid. It even cited Grant 
Construction Co. as precedent. However, in lieu of deciding the issue, the court held 
that the agency's failure to submit to arbitration did not give rise to a cause of 
action by the manufacturer against the United States. A decree for specific 
performance, the court reasoned, was not available against the United States since 
it had not consented to such suits, and a suit for damages "can . . . result in no more 
than the award of nominal damages, since a court cannot know what arbitrators 
would have decided, if there had been arbitration." 153 F. Supp. at 399. There- 
fore, the manufacturer's assertion that the agency breached the arbitration provi- 
sion of the contract was not cause for judicial remedy. 

It is also interesting to note that none of the Amtrak cases cite Grant Construction 
Co. as authority for arbitration. See infra notes 59,61, and 63 and companying text. 

59. 501 F.2d 423 (8th Cir. 1974). 

60. Id. at 427, quoting Gait v. Libbey-Owens-Ford Glass Co., 376 F.2d 71 1, 714 
(7th Cir. 1967). 

61. 551 F.2d 136 (7th Cir. 1977). 



81 



390 
Public Contract Law Journal 



arbitrator, but also because it reiterated the narrow scope of review 
to be employed by the court. The court held that an improper 
construction of a contract by an arbitrator was not a sufficient basis 
for vacating the panel's award. Rather, the court's ability to vacate 
an award is "severely limited" to one of the grounds specified by 
section 10 of the United States Arbitration Act.®^ 

The third case. Seaboard Coast Line Railroad v. National Rail Pas- 
senger Corp.,^^ concerned a suit by Seaboard Coast Line over com- 
pensation due for services rendered to Amtrak. Amtrak moved 
pursuant to section 3 of the United States Arbitration Act®^ to stay 
the litigation pending arbitration. Both parties had entered into an 
arbitration agreement. SCL argued that arbitration would violate 
various provisions of the Interstate Commerce Act.^^ The district 
court referred the case to arbitration and SCL took an interlocu- 
tory appeal. 

The Fifth Circuit affirmed the lower court's referral to arbitra- 
tion. It held that the parties' dispute was on its face one governed 
by the arbitration agreement. The court confirmed the standard 
outlined in the earlier Amtrak cases that a stay of litigation should 
be granted ''unless it may be said with posinve assurance that the 
arbitration clause is not susceptible of an interpretation that covers 
the asserted dispute.'^ 



62. Id. at 141-42. Section 10 of the United States Arbitration Act permits the 
court to vacate an arbitration award 

(a) Where the award was procured by corruption, fraud, or undue means. 

(b) Where there was evident partiality or corruption in the arbitrators, or 
either of them. 

(c) Where the arbitrators were guilty of misconduct in refusing to postpone 
the hearing, upon sufficient cause shown, or in refusing to hear evidence 
pertinent and material to the controversy; or of any other misbehavior by which 
the rights of any party have been prejudiced. 

(d) Where the arbitrators exceeded their powers, or so imperfectly executed 
them that a mutual, final, and definite award upon the subject matter submitted 
was not made. 

(e) Where an award is vacated and the dme within which the agreement 
required the award to be made has not expired the court may, in its discretion, 
direct a rehearing bv the arbitrators. 

9U.S.C. § 10(1982). ' 

63. 554 F.2d 657 (5th Cir. 1977). The case was remanded to decide whether 
various provisions of the Interstate Commerce Act applied. Id. at 661. See 489 F. 
Supp. 916 (M.D. Fla. 1980), affd, 645 F.2d 513 (5th Cir. 1981). 

64. 9 U.S.C. § 3 (1982). 

65. 49 U.S.C. §§ 10761, 1 1 10Ua)(1982). 

66. 554 F.2d at 660, quoting United States Steelworkers of America v. Amer- 
ican Mfg. Co.. 363 U.S. 564 (1960). 



82 



391 

Arbitration: Permissible or Desirable? 



These Amtrak cases indicate that the courts have generally 
assumed that: (1) Amtrak can enter into binding arbitration 
agreements, (2) Amtrak can invoke the United States Arbitration 
Act, and (3) the scope of judicial review, whether before or after 
an arbitration decision, is narrow. 

Previous commentators have not fully discussed this increasing 
body of precedent supporting the proposition that arbitration is 
permissible, at least for government corporations." It is arguable 
that these cases do not persuasively support the legality of arbitra- 
tion because the government's authority to arbitrate was never 
specifically at issue in any of them. Nevertheless, four federal 
courts of appeals, the Court of Claims and a district court have 
enforced arbitration provisions involving federal entities, provid- 
ing solid support (albeit by implication) that government corpora- 
tions can arbitrate. Since there are forty-seven government cor- 
porations which receive billions of dollars in federal funding, the 
impact of this finding is potentially great. 

IV. The Contract Disputes Act of 1978 

The Contract Disputes Act of 1978^® created a uniform dispute 
resolution process applicable to acquisition contracts^^ entered into 
by executive agencies. The term "execudve agency" is defined as 
including wholly owned government corporations as listed in sec- 
tion 9101 of the GCCA.^° Some thirteen government corporations 
are wholly owned. ^' The CDA process is mandatory, since the 
Federal Acquisition Regulation (FAR) requires that a disputes 
clause incorporadng the CDA procedures be included in all agency 
acquisition contracts."^ 



67. See, e.g.. Hardy & Cargill, jw/7ra note 3, at 14 {ching only the Grant Construc- 
tion Co. case as precedent supporting the legality of arbitration. As mentioned 
above, that opinion contained blurred distinctions between government corpora- 
tions and agencies and is, therefore, not of particularly strong precedential value); 
Katzman, supra note 3 (article does not discuss either Reconstruction Finance or 
Grant Construction Co., both of which were decided before the article was written). 

68. 41 U.S.C. §§ 601-613 (1982). 

69. See supra note 8. It is not directly applicable to grants, cooperative agree- 
ments or financial assistance agreements, although, given the wording of the 
statute, an agency could choose to use its board and the CDA procedure in 
disputes concerning such agreements. See infra note 105. 

70. See supra note 7. 

71. Id. 

72. FAR 33.214 requires the contracting officer to insert the Disputes clause. 



83 



392 
Public Contract Law Journal 



The CDA process is fairly straightforward. The CDA requires 
that the contractor involved in a government contract dispute 
obtain a final decision from the contracting officer.'^ The contrac- 
tor can then appeal to either (1) the appropriate Board of Con- 
tract Appeals (BCA) or (2) the United States Claims Court."^ 
Appeal from a decision of a BCA or the Claims Court lies to the 
U.S. Court of Appeals for the Federal Circuit, but the United 
States can only appeal from the BCA if the agency head so decides 
and the Attorney General approves. ^^ 

The first step in the CDA process is to attempt to negotiate and 
settle the dispute. If negotiations fail, the next step is to seek a final 
decision from the contracting officer. For claims involving $50,000 
or less, that decision must be made within sixty days of when the 
claim was filed. "^ In situations where the claim involved is more 
than $50,000, the contracdng officer need only decide within a 
"reasonable time," but must inform the contractor within sixty days 
of receiving the claim how long that reasonable period will be." 
The contracting officer's findings of fact are not binding in any 
subsequent proceeding.^® The final decision must be in writing, 
state the reasons for the decision, and inform the contractor of his 
right to appeal. ^^ 

After receiving the contracting officer's final decision, the con- 
tractor can appeal to the appropriate BCA within ninety days.** 
Appeals to the Claims Court must be made within one year.*' Both 

FAR 52.233-1, in all solicitations and contracts unless the contract is with a foreign 
government, foreign agency, or international organization (or subsidiary body of 
that organization) and the agency head determines that "the application of the Act 
to the contract would not be in the public interest." FAR 33.203(b). The Disputes 
clause states that "[t]his contract is subject to the Contract Disputes Act of 1978. 
. . ." FAR 52.233-1. It is clear that Boards will not enforce an arbitration agree- 
ment if it circumvents an established dispute procedure. Dames 8c Moore, IBCA 
No. 1308-10-79, 81-Z BCA II 15,418. 

73. 41 U.S.C. § 605(a)(1982). 

74. 41 U.S.C. §§ 606, 609(a)(l)(1982). 

75. 41 U.S.C. § 607(g)(l)(B)(1982). 

76. 41 U.S.C. §605(c)(l)(1982). 

77. 41 U.S.C. § 605(c)(2)(1982). If the contracting officer fails to issue a deci- 
sion within the required time, the failure to do so will be deemed a denial of the 
claim and will authorize commencement of the appeal or suit. 41 U.S.C. § 
605(c)(5). However, a court or BCA may stay its proceedings to obtain' a final 
decision bv the contracting officer if it sees fit. Id. 

78. 41 U.S.C. § 609(a)(3)(1982). 

79. 41 U.S.C. §605(a)(1982). 

80. 41 U.S.C. § 606(1982). 

81. 41 U.S.C. § 609(a)(3)(1982). 

_ . 



393 
Arbitration: Permissible or Desirable? 



forums have similar discovery procedures and the same 
remedies.'"^ 

An important advantage to appealing to the appropriate BCA is 
that, in the case of claims of $50,000 or less, the CDA imposes 
deadlines on the BCAs. For claims involving $10,000 or less, 
("small claims") the contractor mav elect an expedited procedure 
that requires a single Board member to issue a decision within 120 
days whenever possible/' There is no judicial review available of 
such a small claims decision/' For claims involving $50,000 or less, 
the contractor can elect an accelerated procedure, in which appeals 
are to be resolved within 180 days, whenever possible/^ 

Only agencies that are found from a workload study to have the 
volume of disputes necessary to justify the establishment of a 
full-time board of at least three members are permitted to have 
their own boards/^ Agencies lacking their own boards may arrange 
to use the board of another agency/' 

BCA members are appointed and serve in the same manner as 
administrative law judges/® BCA resolution of disputes is to be 
"informal, expeditious, and inexpensive."^^ Any appeal from the 
BCA's decision to the Federal Circuit (the CAFC) must be taken 
within 120 days of receipt of the BCA's decision/" Appeals to the 
CAFC from the Claims Court must be brought within thirty days/' 
Findings of fact, but not law, are final and conclusive if supported 
by substantial evidence/^ BCAs have subpoena power/' 



82. 41 U.S.C. §§ 607(d), 610 (1982). See generally Peacock, Discovery before Boards 
of Contract Appeals, 13 Pub. Cont. L.J. 1 (1982). 

83. 41 U.S.C. §608(a)(1982). 

84. 4 1 U.S.C. § 608(d)( 1 982). The elimination of judicial review of an adminis- 
trative decision under this section appears to conflict with the Wunderlich Act, 4 1 
U.S.C. §§ 321-22 (1982). That Act provides that "[n]o Government contract shall 
contain a provision making final on a question of law the decision of any adminis- 
trative official, representative or board." 

85. 41 U.S.C. § 607(0(1982). Id. at § 322. 

86. 41 U.S.C. § 607(a)(l)(1982). 

87. 41 U.S.C. § 607(c)(1982). 

88. 41 U.S.C. § 607(b)(l)(1982). Administrative law judges are appointed 
pursuant to 5 U.S.C. § 3105 (1982). 

89. 41 U.S.C. § 607(e)(1982). 

90. 41 U.S.C. § 607(g)(1982). 

91. 28 U.S.C.A. §§ 1295(a)(3), 2522 (West Supp. 1985); Fed. Cir. R. 10(a)(1); 
Fed. R. App. P. 4(a)(1). 

92. 41 U.S.C. § 609(b)(1982). 

93. 41 U.S.C. § 610(1982). 



85 



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Public Contract Law Journal 



V. A Comparison of the Contract Disputes Act 
Process with Arbitration 

Generalizations about either arbitration or the CDA process are 
difficult. The advantages and disadvantages of each will vary de- 
pending upon the facts and circumstances involved. However, the 
criteria discussed as the costs and benefits of arbitration^ offer 
rough grounds upon which to compare the two dispute resolution 
systems. 

A. Speed 

The caveat concerning the imprecision of generalizations is parti- 
cularly relevant in comparing the relative speed of each dispute 
resolution process. Arbitration has been universally heralded as a 
fast process, at least in part because there are no other cases to 
compete for the arbitrators' time. 

Because of the availability in smaller cases of accelerated proce- 
dures, the speed with which disputes are resolved under the CDA 
varies according to the amount involved. The CDA process could 
theoretically be quicker than court settlement in light of the time 
limits it imposes on the decisions of the contracting officers and the 
BCA. For example, in a claim involving $50,000 or less, the con- 
tracting officer must make a final decision within sixty days of 
receiving the claim. The contractor can then elect to appeal the 
decision to the BCA, which must "whenever possible" issue its 
decision within 180 days. The BCA decision can be appealed to the 
Federal Circuit, but the CDA places no time limit on that court. 
Thus, in a case involving $50,000 or less, a contractor may have two 
administrative decisions made in 240 days or less. 

The similarities between arbitration and CDA resolution are 
even more pronounced when a "small claim" is involved. For 
claims involving $10,000 or less, the contractor will receive the 
contracting officer's decision within sixty days, and a single Board 
member's decision "whenever possible" within 120 days. Since 
there is no judicial review of the Board members decision, a final 
and binding decision may be obtained in 180 days or less. Small 
claims dispute resolution under the CDA is thus very similar to 
arbitration in terms of speed and finality. 

94. See supra at Section II. 

86~ 



395 

Arbitration: Permissible or Desirable? 



If statistics compiled in the early 1970s accurately reflect the 
present composition of contract claims, the "fast track" procedures 
provided by the CDA for claims involving $50,000 or less could 
affect a large percentage of government contract claims. 

Small claims [during the early 1970s were] the bread and butter of the board 
of contract appeals. In the early 1970s, twenty-two percent of all claims to 
boards were for under SI, 000, fifty-one percent under $10,000, and sixty- 
three percent under $25,000.'* 

Yet figures compiled by the Armed Services Board of Contract 
Appeals (the ASBCA) suggest that the number of proceedings 
conducted under the accelerated and expedited procedures is 
currently much more modest. In fiscal year 1985, only 262 of 1 ,293 
appeals (20.3 percent) disposed of by the ASBCA were conducted 
under those provisions of the CDA.^ The average prime contrac- 
tor claim in 1984 was $241,096, well above the $10,000 and 
$50,000 cut-offs.^^ Figures do suggest, however, that the Board 
generally makes its decisions within the time-frame indicated in the 
CDA for the expedited (120 days) and accelerated (180 days) 
appeals. The average number of days on the docket (from date of 
docketing to date of decision) in cases involving such appeals was 
149 in 1985, 151 in 1984, 156 in 1983, 173 in 1982, 171 in 1981, 
and 190 in 1980.^^ Overall, the average time a claim of any size was 
on the ASBCA docket was 484 days in 1985, or about 15.5 



95. Hardy 8c Cargill, supra note 3, at 2, citing Report of the Commission on 
Government Procurement, vol. 4, at 15 (1972). 

96. Report of Transactions and Proceedings of the Armed Services 
Board of Contract Appeals for the Fiscal Year Ending 30 September 1984 
(October 31, 1984) (hereinafter "ASBCA Report"). The ASBCA is the largest of 
the 12 agency Boards of Contract Appeals with 33 members. With a docket size of 
about 1 ,300 cases, it handles approximately 42 percent of the 3 , 1 00 cases filed with 
the 12 boards. No other board compiles the figures referred to in the text. The 
other 1 1 boards, and their number of members and approximate docket size, are 
as follows: the General Services Board of Contract Appeals ( 1 1 members and 450 
cases); the Engineer Board of Contract Appeals (six members and 450 cases); the 
boards of the Department of Transportation, the Department of the Interior, the 
Postal Service, the Department of Agriculture, and the Veterans Administration 
(all have four members and handle about 100 cases each); the National Aeronau- 
tics and Space Administration, the Department of Housing and Urban Develop- 
ment, the Department of Energy, and the Department of Labor (all have-three 
members and handle fewer than 100 cases each). Federal Bar Association 
Board of Contract Appeals Committee, Manual for Practice Before 
Boards of Contracts Appeals (1981). 

97. ASBCA Report, supra note 96. 

98. Id. 



87 



396 

Public Contract Law Journal 



months.^^ This figure suggests that for appeals not accelerated or 
expedited, the time it takes to get an agency decision can be long. 
One factor possibly affecting the dme and cost of an arbitration 
decision is the arbitrator selection process. If the selection were on 
an ad hoc basis, the government agency involved might spend 
considerable time developing a list of acceptable arbitrators and 
conducting background checks on those individuals. It is not hard 
to imagine the use of government-wide regulations for the selec- 
tion of arbitrators. Disappointed applicants for arbitrator positions 
might protest the selection of other individuals, and agencies might 
be required to give such applicants a hearing. A search for accept- 
able arbitrators each dme a dispute arose would be costly to the 
government and would require the use of agency personnel. Use 
of the Boards of Contract Appeals requires no such search, since 
they are standing bodies. 

B. Expense 

Because judicial review of arbitration decisions is severely limited, 
the parties to an arbitration need usually only spend dme and 
money to prepare and present a case before one forum. Parties to a 
BCA appeal, on the other hand, sometimes must prepare and 
present their case before two forums: the BCA and the Federal 
Circuit. This fact alone can account for higher costs to the parties 
under the CDA system. If the theory of arbitration holds true in a 
particular case, arbitration will produce additional savings because 
there is less judicialization in an arbitration than before a BCA. 
This advantage is negated if the parties to an arbitration demand 
judicialization. 

In large disputes, the reduction or elimination of the use of 
discovery or briefs can result in substantial savings. However, the 
more money that is at stake the greater the chance that pardes will 
insist on greater due process protection. Where the claim is for 
$10,000 or less, the CDA's small claims procedure is so similar to 
arbitration '°^ that there would not be a financial reason to choose 
arbitration over it. 



99. Id. 
100. See supra at Section IV. 



88 



397 
Arbitration: Permissible or Desirable? 



A party contemplating the use of arbitration should consider 
what savings, if any, are likely to occur in light of the particular 
dispute. How muchjudicialization will both sides require? If it is a 
complex dispute, will discovery and briefs be massive and costly to 
prepare? If so, will the parties agree to eliminate or substantially 
curtail the use of discovery and the writing of briefs? Would the 
parties split the cost of paying the arbitrator's salary? Will any 
savings that result from choosing arbitration be offset by the fact 
that arbitrators are more likely to split the amount in dispute, 
thereby reducing a party's potential recovery? Is it likely that a 
disappointed party will seek review of a BCA decision? Because the 
parties have direct control over an arbitration they can directly 
affect the cost of the process. Whether they are willing to take 
cost-cutting measures, and the concomitant trade-off in terms of 
due process considerations, will vary from case to case. 

C. Formality 

As noted, parties choosing arbitration can agree upon the level of 
formality they prefer. Yet the parties will not always opt for less 
formality. A growing concern in labor arbitration is that it is be- 
coming too formalized as the parties demand more and more 
judicialization.'*'' Yet, if figures concerning prehearing discovery 
are any indication of overall formality, the ASBCA has not been 
overly judicialized. Twenty-three percent of the ASBCA cases in 
FY 1985 involved prehearing discovery in which rulings were 
sought. '•^^ Where the small claims procedure is selected, the CD A 
requires that simplified rules of procedure be used.'*^^ 

D. Expertness and Independence of the 
Decision-maker 

The CDA method of selecting members of the BCAs helps to 
ensure that board members are experts in federal acquisition law. 
Section 607(b) requires that board members be selected in the same 
manner as administrative law judges, i.e., solely on the basis of 



101. Ashe, Arbitration Finality: Myth or Reality? 38 Arb. J. 42 (1983). 

102. ASBCA Report, supra note 96. 

103. 41 U.S.C. § 608(b)(1982). 



89 



398 

Public Contract Law Journal 



merit. In addition, members must have at least five years of experi- 
ence in public contract law.'*^ 

Despite these congressional efforts to ensure expertness, board 
members are arguably not totally independent since they are 
selected by the agency heads and paid by the agency. The BCA 
members might be viewed as agents of the agency they serve and, 
therefore, more sympathetic to the agency viewpoint. Yet the OPM 
removal procedure helps to prevent the Board members from 
fearing retribution by his or her agency for "improper" decisions. 

The theoretical independence of board members is even more 
uncertain when a board is involved in a matter which an agency has 
voluntarily decided to assign to it.'°^ There is nothing to prevent an 
agency from taking an issue out of the hands of a board with which 
it has voluntarily invested it. 

The parties are less likely to find an "expert" decisionmaker 
when they appeal to the Federal Circuit. Because the cases brought 
before the CAFC often concern matters other than public contract 
law, the judges are not as specialized as Board members or arbitra- 
tors might be. Also, unlike BCA members, judges are selected 
through the political process rather than stricdy on merit. 

As noted earlier, the parties to an arbitration select the arbitra- 
tors and in this way control the qualifications of those who will 
decide their case. In some cases, selection of an arbitrator requires 
some research. But while the parties to an arbitration can select an 
arbitrator with particular experience in the area of dispute, it is 
safe to say that the parties do not lose the advantage of having an 
expert hear their case when they choose to use the BCA process. 

E. Privacy 

Hearings before and decisions of the BCAs are public, unlike 
private arbitration decisions. While parties to an arbitration can 

104. 41 U.S.C. § 607(b)(l)(1982). 

105. The CD A does not prohibit an agency from having its board decide 
matters not covered by the CDA. The only apparent limit is the requirement that 
members have no other inconsistent duties. 9 607(a)( 1 ). For example, the Depart- 
ment of Energy uses its Board to decide debarment cases. Because an agency can 
use its board for extra-CDA activities, disputes involving grants, cooperative 
agreements, or financial assistance agreements, as well as disputes involving 
government corporations not covered by the CDA can be given to a board for 
decision. The agency head can remove such matters from board jurisdiction at 
any time. 



90 



399 
Arbitration; Permissible or Desirable? 



agree to keep silent about their dispute and not release the arbitra- 
tor's decision to the public, parties using the CDA have no such 
choice. BCA opinions are released to the public. If an arbitration 
decision is appealed to a court, however, the facts of the dispute can 
become public. 

F. Uniformity of Decisions and Precedent 

That an arbitration panel is convened solely for the dispute in- 
volved and is disbanded once it makes a decision all but eliminates 
the possibility that arbitration panels could establish a body of 
public contract law that other panels would follow. Because the 
panels are entities of limited purpose and duration, their members 
do not feel compelled to follow previous decisions. Because there is 
no guarantee of uniformity of decisions by public contract law 
arbitrators, the parties are less able to evaluate their chances for 
success. 

The BCAs, on the other hand, have developed a large body of 
law, and parties to a dispute frequently cite decisions of BCAs 
other than the one hearing their case as support for their position. 
It is only in the small claims area that decisions are deemed to have 
"no value as precedent for future cases. "''^ In general, a party 
desiring to rely upon precedent is best advised to use the CBA 
process. 

G. Judicial Review 

The statutory language in the United States Arbitration Act con- 
cerningjudicial review creates a very limited ground upon which a 
court can set aside an arbitrator's award. An arbitration award can 
be set aside only if a court finds corruption, fraud or undue means, 
finds that the arbitrator refused to hear material evidence, or that 
the arbitrator exceeded his or her power. '^^ Because it is very 
difficult to have a decision vacated under these standards, parties 
are less likely to appeal the decision. 

Judicial review of BCA decisions is more searching than that of 
arbitration decisions. BCA decisions on questions of law are not 



106. 41 U.S.C. § 608(e)(1982). 

107. 9 U.S.C. § 10 (1982). See supra note 62. 



91 



400 

Public Contract Law Journal 



final or conclusive on the CAFC. The CDA provides for judicial 
review under the "clearly erroneous" standard."^** The committee 
report that accompanied the CDA specifically states that "[t]he 
'substantial evidence' standard of review will no longer be used for 
review of agency board decisions. "'^^ The clearly erroneous stan- 
dard is fairly limited but it is more searching than the scope of 
review employed by courts in reviewing arbitration decisions. A 
party that hopes to get some review of the decision maker's adverse 
action should be aware that the CDA standard is more advan- 
tageous. But for parties willing to forego meaningful review in 
order to save time and money, arbitration is the better alternative. 

VI. Conclusion 

This article has addressed two major questions concerning the use 
of arbitration to resolve federal public contract disputes. First, 
which federal entities can agree to arbitrate their contractual dis- 
putes? Secondly, what are the costs and benefits of arbitration that 
those federal entities must consider in deciding whether to use 
arbitration? 

Concerning the first question, all government agencies and 
those government corporations covered by the Government Cor- 
poration Control Act (GCCA) and consequently the Contract Dis- 
putes Act must use the CDA system to resolve disputes cojicerning 
federal acquisition contracts. (However, one-dme deviations from 
the regulations which implement the CDA are theoretically possi- 
ble.) Since the CDA covers only acquisition disputes, government 
corporations covered by the GCCA can arbitrate in nonacquisition 
situations. Government corporations not covered by the GCCA can 
arbitrate any dispute, whether it involves acquisition contracts or 
not. 

In addition, there appears to be a flat ban on any use of arbitra- 
tion by agencies, given the Comptroller General's interpretation of 
41 U.S.C. § 1346. The justification for the flat ban on the use of 
arbitration by agencies is of questionable strength. The Comptrol- 
ler General's interpretation of a seemingly inapplicable statute as 



108. S. Rep. No. 95-1118, 95th Cong., 1st Sess. 1, 30, reprinted in 1978 U.S. 
Code Cong & Ad. News 5235, 5264. 

109. Id. 



92 



401 

Arbitration: Permissible or Desirable? 



barring the use of arbitration and the fact that the CDA process is 
mandatory is at the heart of the present justification. 

It is not altogether clear why government corporations are ex- 
cepted from the general ban. Numerous courts have upheld 
arbitration agreements involving government corporations, but 
none have addressed the legal justification for allowing those en- 
tities to arbitrate. 

The second question concerns the costs and benefits of arbitra- 
tion. It is simplistic to assume that arbitration is preferable to 
administrative or judicial settlement in all circumstances. Govern- 
ment entities and government contractors must conduct a 
cost-benefit analysis of arbitration and any alternative dispute res- 
olution system before deciding which method to use. Disputes 
involving entities not covered by the CDA and disputes beyond the 
reach of the CDA can nevertheless be decided by the CDA boards if 
an agency head so agrees. Government corporations that can arbi- 
trate should consider arranging to use a BCA to decide their 
disputes. 



93 



403 



ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

Proposed Recommendation 

Assuring the Fairness and Acceptability of 

Arbitration in Federal Programs 



The Administrative Conference has recommended that agencies employ alternative means 
of dispute resolution (ADR) in federal programs.^ ADR techniques for rulemaking include 
structured negotiation and mediation; for adjudication, they also include arbitration, 
factfinding and minitrials.^ The bulk of these techniques do not alter the placement of 
policymaking authority within the agencies, and therefore pose few of the legal and policy 
concerns of binding arbitration, which typically involves the use of outside arbitrators 
authorized to make decisions binding upon the government. If an arbitrator decides a claim 
by or against the government, public money will be involved. Arbitration decisions 
concerning other issues in administering a federal program, such as the resolution of 
enforcement cases, or disputes between the agency and its employees, affect administration 
of the program. In programs where the agency's role is to resolve disputes between private 
parties, arbitrated disputes will relate to the purposes of the program, for example by 
resolving common facts with those involved in program administration. In addition, the 
Constitution requires that significant duties pursuant to public law must be performed by 
Officers of the United States and their employees. Fidelity to this principle can be ensured 
if Congress in authorizing the use of arbitration or the agency when adopting arbitration 
confines it to appropriate issues and provides for the agency's supervision of arbitration. 

Existing law authorizes resort to arbitration in a variety of different contexts, including 
claims by and against the government, disputes between private individuals that are related 
to program administration, and labor relations issues between the government and its 
employees. Recommendation 86-3 calls on Congress to act to authorize agency officials to 
choose arbitration to resolve many additional disputes. 

This recommendation contains procedural guidance for Congress, and occasionally 
agencies, in an effort to ensure the fairness and acceptability of arbitration in federal 
programs. The criteria are necessarily general, and the appropriateness of particular arbitral 
procedures must be judged in the context of the particular functions they serve. Agencies 
are generally in the best position to assess the need for informal and expeditious process, and 
to weigh that need against considerations of accuracy, satisfaction, and fairness. While the 
Conference encourages granting agency officials broad "on-the-spot" discretion to use 
arbitration, it recognizes the need for preliminary steps to meet concerns that the process 
provide some executive oversight, preserve judicial functions, ensure quality decisions, and 
to minimize concerns over the legality and fairness of the process. This recommendation sets 
forth procedural criteria to aid Congress and agencies in taking these first steps. 



^ See generally Recommendation 86-3. 

^ See Recommendations 82-2, 82-4, 84-4 and 85-5. 



404 



-2- 



RECOMMENDATION 

1. In all cases, congressional authorization for arbitration should ensure that Congress 
has made, or the agency will make, an explicit judgment that arbitration is appropriate for 
the case or class of cases in question. Criteria for determining whether arbitration is 
appropriate include the following: 

(a) Cases subject to arbitration should involve questions of fact or the application of 
well-established norms, even if statutory, rather than precedential issues or application of 
fundamental legal norms that are evolving. 

(b) In determining whether to employ arbitration. Congress or the agency should 
consider the nature and weight of the private interests involved, the nature and weight of the 
government's interests, and the tradeoffs between the costs and benefits of arbitration and 
those of more formal processes. For example, questions about eligibility to participate in a 
federal entitlement program are not likely to be suitable for arbitration, because the need for 
procedural protections is likely to outweigh cost considerations. Still, once eligibility to 
participants has been established, disputes over particular monetary claims or levels of 
benefits under such a program are prime candidates for arbitration, due to the heavy 
adjudicative caseload and need for specialized decision. 

2. Congress should assess the desirability of authorizing mandatory arbitration in light 
of the extent to which a person's participation in the affiliated program is voluntary.^ For 
example, participation in an entitlement program is more likely to reflect need than consent, 
and should not be regarded as consent to arbitration of eligibility. 

3. Congressional authorization for arbitration should ensure that: 

(a) The agency has an opportunity to choose whether to resort to arbitration,* and to 
review the overall composition of the arbitral pool to ensure its neutrality and, where 
appropriate, specialized competence. Agencies should either employ arbitral pools and 
procedures that are well-established, such as those of the AAA, or should develop pools to 
meet their special needs. ^ 

(b) The agency that is a party to an arbitrable controversy has a role in the selection of 
the arbitrators, consistent with preserving the neutrality of the decider, for example by 
striking names from a list; and 

(c) Arbitral awards are reviewed by agencies or by courts under the criteria of the U.S. 
Arbitration Act, which authorizes review of the facial validity of the award and the integrity 
of the process. Review of individual awards can be allocated to the agency.® If so, no 
special provision need be made for judicial review of individual awards. Judicial review of 
the overall structure and fairness of the arbitration program should suffice. In the rare case 
in which a serious constitutional issue attends an individual arbitration, such as an allegation 
of a taking, existing law provides avenues for relief. 

4. Agencies should ensure that the standard for arbitral decisions is reasonably specific, 
by promulgating administrative standards where statutes do not sufficiently guide arbitral 
decision. A substantial justice standard for arbitral awards should be used only when 



^ See Conference Recommendation 86-3, Agencies' Use of Alternative Means of Dispute 
Resolution, for other limitations on the use of mandatory arbitration. 

* See\± 

^ See Conference Recommendation 86-8, <| 1(c), Acquiring the Services of Neutrals for 
Alternative Means of Dispute Resolution. 

® See Recommendation 86-3, Agencies' Use of Alternative Means of Dispute Resolution. 



405 



3 - 



explicitly approved by the agency, because of the resulting difficulties of administrative or 
judicial review of the outcome. The sufficiency of other standards should be judged by 
whether the parties can consent meaningfully to arbitration and can prepare their cases, 
whether the arbitrators can produce reasonably consistent decisions, and whether reviewing 
entities can judge the facial validity of awards. 

5. The following considerations should govern the ongoing administration of arbitral 
programs: 

(a) Agencies should be careful to preserve the neutrality of arbitration by avoiding 
instructions to arbitrators or forms of oversight that would threaten to undermine the 
arbitrator's neutrality in particular cases. Any effective guarantee of the arbitrator's 
neutrality, such as mutual selection by the parties, will suffice. 

(b) Authority to determine the arbitrability of particular disputes can be placed in the 
courts, as under the U.S. Arbitration Act, or in another neutral third party, such as the 
administering agency where arbitration concerns private parties, or in an agency other than 
one which is a party to arbitration. 

(c) Rulemaking can alter the standards for future arbitration when monitoring of awards 
reveals outcomes inconsistent with the agency's expectations in employing arbitration. 



I 



I 



407 



2. BACKGROUND ON DISPUTE RESOLUTION MECHANISMS 
D. Other 



I 



409 

1983-841 Reprinted with permisaion from Villanova Law Review , 

J Volume 29, No. 6, pp. 1421-1448" 

(C) Copyright 1983/4 by Villanova University 

THE NEGOTIATIONS ALTERNATIVE IN DISPUTE 
RESOLUTION 

John T. DuNLOPf 

I. Introduction: The Emergence of the Negotiated 

Resolution 

In Western societies there have been two approved arrangements 
over the past century or two for resolving conflicting interests among 
groups or organizations and their constituent members: the market- 
place and government regulatory mechanisms established by the 
political process. Markets in various institutional forms* bring to- 
gether buyers and sellers without visible hand, to set prices of goods, 
services, and various factors of production, including land and capital 
assets. Markets provide the terms of exchange and thus resolve, 
largely impersonally, disputes between potential buyers and sellers 
over the countless features of transactions. Adam Smith stated early 
in the Wealth of Nations more than two hundred years ago: 

Give me that which I want, and you shall have this which 
you want, is the meaning of every such offer; and it is in this 
manner that we obtain from one another the far greater 
part of those good offices which we stand in need of. It is 
not from the benevolence of the butcher, the brewer or the 
baker that we expect our dinner, but from their regard to 
their own interest.^ 

In addition to providing markets with legal status, the political 
process has established government institutions, from courts to ad- 
ministrative tribunals, to resolve many other conflicts and differences 
of interests and to restrain methods of conflict. Also, the political 
process has established and nurtured the "public household"^ or pub- 

t Lament University Professor of Economics, Harvard University. University 
of California at Berkley, A.B., 1935; Ph.D., 1939. 

1. Ste J.T. Dunlop, Labor Organization, Markets, and Economic Vitaiization, in 
Strategies for Productivity, International Perspectives 11-20 (1984) 
(symposium sponsored by Japan Productivity Center). 

2. A. Smith, An Inquiry into the Nature and Causes of the Wealth of 
Nations 14 (1937) (discussing the principle which creates the division of labor). 

3. D. Bell, The Cultural Contradictions of Capitalism 220-27 (1976). 
Bell defines the "public household," as it is expressed in the government budget, as 
"the management of state revenues and expenditures." Id. at 221. This concept 
stands in Juxtaposition to the concept of "domestic household," the goods "not val- 

(1421) 



410 



1422 ViLLANOVA Law Review [Vol. 29: p. 1421 

lie sector that complements, competes with and alters the private 
market economy. 

It is not this article's purpose to recount or explain the develop- 
ment of markets or the growth of the "public household," including 
regulatory institutions, in Western societies or the United States."* 
Rather, the starting point is to note that the received ideas and insti- 
tutions present to resolve conflicting interests consist of both markets 
and governmental regulation. 

There is abundant evidence that the American community since 
the Great Depression places less reliance on markets to achieve social 
purposes, including the resolution of conflicting interests, despite the 
deregulation movement of the past decade.^ In international trade, 
for example, the doctrinaire support for free trade and free markets 
for international commerce has been supplemented or replaced by a 
complex network of reciprocal and bilateral agreements negotiated in 
various forums as reflected in the arrangements for sugar, coffee, tin, 
wheat, textiles and apparel, steel and other manufactured goods, 
maritime cargos and airplane fares, not to mention the migration of 
people across national boundary lines. In the labor market, the pres- 
ence of collective bargaining, minimum wage regulation, health and 
safety standards, and pension and nondiscrimination requirements 
emphasizes the extent to which reliance on the market has been qual- 
ified. The regulations of the SEC, Federal Reserve System, Comp- 
troller of the Currency and the housing finance agencies, fair housing 
rules, and the Internal Revenue Code, among others, constrain capi- 
tal flows and money markets. The complex of regulations affecting 
specific product markets, from public utilities through consumer and 
producer goods, including agricultural products, has greatly ex- 
panded, constricting buyers and sellers and changing the nature of 
these markets. Moreover, wage and price controls, or some form of 
incomes policy, were in effect for twenty-two out of the forty-four 
years that followed 1940. 

ued . . . because they are not exchanged in the market," such as a housewife's serv- 
ices, and "market economy," valuing goods by the prices used in the exchange of 
money. Id. at 220. The idea of "pubhc household" stresses the use of the govern- 
ment's budget to distribute its assets to various sectors of the society. Id. at 226-27. 

4. See A. Chandler, Jr., The Visible Hand: The Managerial Revolu- 
tion IN American Business (1977); C. Lindloom, Politics and Markets, The 
World's Political-Economic Systems (1977); ^.L. Schultze, The Public Use 
OF Private Interests (1977). 

5. Dunlop, The Limits of Legal Compulsion, in Issues IN Health Care Regui^- 
TiON 184-91 (R. Gordon ed. 1980). See also M.L. Weidenbaum, The Future of 
Business Regulation: Private Action and Public Demand (1979) (discussing 
methods bv which the business system best serve the public). 



411 
1983-84] Negotiations Alternative 1423 

The costs of the complex of regulatory mechanisms, including 
the distortion of decisions, financial outlays, litigation, delays and 
greater uncertainty, have come to be increasingly recognized as a 
heavy burden which complicates the resolution of conflicting inter- 
ests.^ The uneconomic consequences of some regulations have helped 
to cause the rediscovery of the market in the past decade and to ad- 
vance deregulation, as in developments affecting airlines, trucking 
and communications.^ The deregulation movement may still ex- 
pand, although it is difficult to see deregulation growing faster than 
the political propensity to regulate. The main thrust of the past gen- 
eration must clearly be characterized as a movement away from reli- 
ance upon the market. 

Negotiations and negotiation processes appear to be on the as- 
cendancy as compared to markets; in recent years, they have been 
increasing even when compared to public regulations. It is not un- 
common, for instance, for private corporate suits to be settled by di- 
rect negotiations between the companies, or with the government, as 
in the instance of a telecommunication antitrust case after more than 
twelve years.^ The major disputes involving the price and supply of 
uranium between Westinghouse and certain utilities have been set- 
tled by direct negotiations and the withdrawal of court suits.^ The 
device of plea bargaining on economic questions likewise is illustra- 
tive of the general distrust of pure regulation and public agency deci- 
sion and the tendency to resort to negotiations to limit uncertainty, to 
speed resolution, and to assure greater attention to features of a settle- 
ment that are of special concern to each party. Contestants often 
achieve a more satisfactory and less risky settlement by direct negotia- 
tions, or negotiations with the staff" of a public agency, than would be 
likely were the proceedings to run their full litigious course. 

6. See, e.g., Arthur Anderson & Co., Cost of Government Regulations Study for Business 
Roundtable (March 1979) (a study of the direct incremental costs incurred by 48 com- 
panies in complying with the regulations of six federal agencies in 1977) (available at 
University of Pennsylvan library); E.F. Denison, Effects of Selected Changes in the Institu- 
tional and Human Environment upon Output per Unit of Input., SURV. CuRRE^^^ Bus., Jan. 
1978, at 21-44 (explaining the costs of pollution abatement, employee safety pro- 
grams, and crime). 

7. See D. Martin & W. Schwartz, Deregulating American Industry 
(1977) (comparing advantages and disadvantages of deregulation). 

8. See Telecommunications Regulation Today and Tomorrow (E.M. Noam ed. 1983) 
(discussing the 1982 consent agreement in which AT&T agreed to divest itself of the 
Bell Operating Companies after the Antitrust Division of the Justice Department 
brought suit against it). 

9. For a discussion of the facts surrounding this occurrence, see Westinghouse 
Elec. Co. V. Kerr-McGee Co., 580 F.2d 1311 (7th Cir), cert, dented, 439 U.S. 955 

(1978). 



412 



1424 ViLLANOVA Law Review [Vol. 29: p. 1421 

A variety of specialized mediation and arbitration devices also 
have been developing in recent years to facilitate agreement-making 
and to reduce litigation and formal court processes in fields outside of 
the industrial relations arena, which has used such methods for many 
years and where the institutional arrangements are well established. ^° 
Thus, malpractice suits, home or product warranty controversies, 
price or product differences among owners, contractors and architects 
in construction, or differences between manufacturers and converters 
in textiles and apparel, or some equal employment opportunity con- 
troversies are new areas in which disputes have been submitted to 
mediation or arbitration under voluntary arrangements developed 
and administered by the American Arbitration Association. A 
number of courts have experimented with special mediators, includ- 
ing the Bronx Housing Court in disputes between landlords and ten- 
ants, and in some courts in divorce cases. *^ A number of 
organizations have sprung up, such as Resolve, to encourage the set- 
tlement of complex controversies between environmentalists and busi- 
nesses by using direct negotiations and mediation. '^ In all these cases, 
procedures that are faster, less expensive and more subject to the in- 
terests of the contending parties are replacing more formal and legal- 
istic determinations.'^ It can be expected that these methods of 
dispute resolution will spread and be more extensively utilized. 

Negotiations have not only extended into the resolution of indi- 
vidual cases and disputes; they are also utilized to resolve controver- 
sies over public regulations and rule making,''* and indeed, in the 
accommodation of differences over the legislation itself. The proce- 
dures used to enact the Arab boycott legislation, the 1979 Trade Lib- 

10. See M, DoMKE, Commercial Arbitration 24-30 (1965) (discussing the 
American Arbitration Association and how arbitration protects victims injured by 
uninsured motorists); G. Goldberg, A Lawyer's Guide to Commercial Arbi- 
tration 93-109 (2d ed. 1983) (arbitration in a dispute between an architect and a 
home owner). 

1 1. See Kraut, Domestic Relations Advocacy — Is There a Belter Alternative?^ 29 ViLL. 
L. Rev. 1379 (1984) (outlining the special role of the mediator in family dispute 
proceedings in Chester County, Pa.). 

12. SeeG. Cormick & L. Patten, Environmental Mediation: Defining the Pro- 
cess Through Experience (Feb. 1977) (paper prepared for the American Association 
for the Advance of Science, Symposium on Environmental Mediation Cases, Denver, 
Colorado; the authors are associated with the Office of Environmental Mediation, 
University of Washington). 

13. See generally L.S. Bacovv, Bargaining for Job Safety and Health 
(1980). For example, Bacow notes that the GM-UAW and the steel industries have 
provided for more stringent health and safety arrangements than the standards set by 
OSHA. Id. at 86-87. 

14. Harter, Dispute Resolution and Administrative Law: The History, Needs, and Future 
of a Complex Relationship, 29 ViLL. L. Rev. 1393 (1984). 



413 

1983-84] Negotiations Alternative 1425 

eralization Act and the 1983 Social Security amendments, are 
illustrative of the successful resort to negotiations procedures prior to 
and outside the estabhshed process. In Massachusetts, the legislation 
reforming the administration of public employee pensions, including 
disability pensions, and creating the Public Employee Retirement 
Administration was negotiated and mediated among various private 
and governmental interests, including legislators, before enactment.*^ 

One needs to be careful about the meaning of the statement that 
negotiations are an alternative to or replacement for markets and 
governmental determinations. It is easy to see that there may have 
been a change in form or appearance, but the reality is more com- 
plex. As with wage and price controls or collective bargaining, mar- 
ket forces are not entirely displaced or replaced. Sooner or later, they 
continue to operate, limit and shape, to some degree, the decisions 
made through the new institutions. It is erroneous to assert either 
that the new institutions make no difference, or that the decisions are 
entirely different since the market or the regulations have been al- 
tered to a negotiations form. Rather, the reality is that both old mar- 
ket forces and new ones generated by the new institutions operate 
through the new institutions, yielding more or less different results, to 
be assessed in each situation. 

Collective bargaining, for instance, does change the performance 
of labor markets in many ways not appreciated by econometric stud- 
ies. The tendency of collective agreements in many industries to be 
set for three-year terms, or differences between the parties in pure 
bargaining skills and power, or institutional interests in fringe benefits 
or union security may be expected to result in somewhat different 
terms and conditions of employment over time than would arise 
through markets or under governmental dictation. The quality of 
management and its policies as well as the characteristics of the labor 
force are altered. But it would be simplistic to hold that market con- 
siderations have been entirely displaced or eliminated. The substitu- 
tion in form, from market to a negotiations form, has complex results 
that differ significantly from the market results. 

The penetration of negotiations into the arena of governmental 
determinations, similarly, is not merely a change in institutional 
form. The costs and time of settlement are likely to be less than pro- 
tracted litigation. The opportunity to influence more directly the 
outcome and to secure attention to issues of most vital concern is 
often greater. These factors are likely to yield different results 

15. See Mass. Gen. Laws Ann. ch. 7, §§ 49-50 (West Supp. 1984). 



414 

1426 ViLLANOVA Law Review [Vol. 29: p. 1421 

through negotiations than through Htigation or other formal 
processes. It must be remembered, though, that in the course of nego- 
tiations, the possibility of reverting to a court, to an administrative 
agency or to legislative bodies is likely to be a continuing influence, 
and the emerging precedents of litigation are likely to influence rela- 
tive positions and bargaining tactics. With regard to negotiations on 
some issues subject to regulatory decisions, such as employment dis- 
crimination or protected activity cases, agreements or settlements are 
subject to attack and to displacement in the very tribunals that nego- 
tiations are intended to circumvent. It cannot be denied, however, 
that negotiating a settlement with one or more adversaries, or with a 
governmental administrative agency or in a court is a different pro- 
cess with somewhat different results than a commitment to litigation 
and formal processes. 

The field of industrial policy has come to be an area of intense 
ideological debate, including the role of negotiations and tripartite 
committees in establishing and administering policies relating to eco- 
nomic growth and industrial configuration. Business Week^ in an edi- 
torial on the strategy for rebuilding the economy, urges "[t]he leaders 
of the various economic and social groups that compose U[nited] 
S[tates] society to agree on a program for reindustrialization and pres- 
ent that program to Washington."'^ The AFL-CIO has repeatedly 
proposed a tripartite National Reindustrialization Board "to carry 
forward a rational national industrial policy."'^ The Wall Street Jour- 
nal takes a different editorial position: 

The only industrial policy we need is one that offers the 
maximum possibility for individual decision makers to ap- 
ply their initiative and imagination, take their risks and 
reap their rewards when their judgments are correct. As a 
group they will be right far more often than government 
bureaucrats not subject to the disciplines and incentives of 
the market.*^ 

16. A Strategy for Rebuilding the Economy, Bus. WEEK, June 30, 1980, at 146. This 
editorial recognizes the necessity of reindustrializing the United States and proposes 
a five step method to redo the manufacturing sector of the economy. Id. These five 
steps include: 1) agreement on a program of reindustrialization between the leaders 
of different sectors of the economy, 2) tax cuts for investments and subsidies or tax 
preferences for research and development spending, 3) a different type of federal 
budget, 4) redirection of investments away from housing loans and toward research 
and expert activities, and 5) promotion of exports. Id. 

17. Jobs: The Agenda For Recovery, The AFL-CIO AMERICAN FEDERALIST, Jan. 
8, 1983, at 5, 8, reprinted in AFL-CIO News, Jan. 8, 1983. 

18. Neolib Nonstarters, Wall St. J., Oct. 19, 1982, at 34, col. 1. This editorial dis- 
cussed a new industrial policy which would favor winning or "sunrise" industries 



415 

1983-84] Negotiations Alternative 1427 

These introductory observations have been to call attention to 
the reality of the growing importance of negotiations in resolving real 
or potential conflicting interest among groups in our society. Negoti- 
ations have been making inroads on both markets and governmental 
mechanisms. These changes are more complex than the apparent 
changes in form. The expansion of negotiations brings w^ith it grow- 
ing controversy over the independent consequences of negotiations. 
The study of markets and, more recently, the study of regulation, are 
both well established in the disciplines of economics and law. The 
negotiations process deserves to be much better and more widely 
understood. 

II. Approaches to Negotiations 

There are a variety of approaches to explicate the negotiations 
process. A considerable amount of literature utilizes formal models 
seeking to explain bargaining generally and collective bargaining ne- 
gotiations in particular.*^ At one time I developed a model of bar- 
gaining power (with Benjamin Higgins) based upon different degrees 
of competition in related product and labor markets and the "pure" 
bargaining power of negotiators to determine a wage rate.^o 

There are at least two major difficulties with the applicability of 
abstract models of negotiations. The first is that they are typically 
simplified to a single issue, such as money, or they assume that other 
issues are translatable into money on some stable trade-off, effectively 
creating a single issue. The second difficulty arises from the usual 
presumption that the negotiators constitute monolithic entities. They 
are portrayed as having no significant internal differences among the 
constituent members of the negotiating organizations and no differ- 
ences between these members and their negotiator. Also, in these ab- 
stract models any internal differences which are used are entirely 
constant throughout the negotiations. In my experience, these sim- 

with tax breaks, loan guarantees and other subsidies, while not doing the same for 
losing or "sunset" industries. Id. The editorial expresses skepticism about the ability 
of government technocrats to predict which industries will be winners and which 
losers and instead favors a more market oriented industrial policy. Id. 

19. See W.N. Atherton, Theory of Union Bargaining Goals 3-30 (1973); 
J. Pen, The Wage Rate Under Collective Bargaining (T. S. Preston trans. 
1959); I. Stahl, Bargaining Theory (1972); CM. Stevens, Strategy and Col- 
lective Bargaining Negotiation (1963); Korman & Klapper, Game Theory's War- 
time Connections and the Study of Industrial Cotiflict, INDUS. & Lab. Rel. Rev., Oct. 1978, 
at 24-39. 

20. Dunlop & Higgens, "Bargaining Power" and Market Structures., ^. PoL. ECON., 
Feb. 1942, at 1-26 (this model utilized the concepts of supply and demand of labor, 
indifference functions of enterprises and degrees of monopoly). 



416 

1428 ViLLANOVA Law Review [Vol. 29: p. 1421 

plifcations, essential to analytical rigor, are too abstract to be very 
helpful for providing much insight into the class of negotiations 
which are of central concern to me. 

Another approach to explicate negotiations is through the use of 
experimental or simulated bargaining games.^* In some instances a 
class is divided into groups to represent the negotiating parties, initial 
positions are defined for each, and rules of play are specified. The 
process can generate substantial interest and apparent involvement of 
the participants. 

There has been some effort to use econometric methods to mea- 
sure aspects of arbitration or collective bargaining. Public sector bar- 
gaining has been used most often in view of the availability of data.22 
The results appear to me to be unimpressive; situations are always 
changing in some respects, and these studies do not appear to center 
on fundamentals. 

There is an approach to negotiations that constitutes an almost 
verbatim account of the exchanges from the earliest stages of negotia- 
tions to the achievement of a settlement. ^^ In recent years more con- 
densed case studies of negotiations have been developed for courses in 
schools of business, law and public policy.^'* 

A somewhat different approach is developed in this article: to 
limit the types of negotiations considered and then to outline a 
number of key principles that are central to an understanding of the 
negotiations process. These principles grow out of reflecting on expe- 
rience; they seek to blend analysis and art forms. 

The types of negotiations considered in this article have at least 
three characteristics that eliminate some negotiations from our con- 

21. See H. Raiffa, The Art and Science of Negotiation (1982) (setting 
forth several game methods involving games against specified players, games not in- 
volving any interaction with any player, and games of deception). See also DeNisi & 
Dworkin, Final Offer Arbitration and the Naive Negotiator, Indus. & Lab. Rel. Rev., Oct. 
1981, at 78-87. This article analyzes a game in which undergraduate students played 
the role of labor and management. Id. at 78-79. It concludes that negotiators try 
harder to reach their own settlement and feel more positively about their opponents 
when they fully appreciate the final offer procedure. Id. at 86. 

22. See Butler & Ehrenberg, Estimating the Narcotic Effect of Public Sector Impasse 
Procedures, INDUS. & Lab. Rel. Rev., Oct. 1981, at 3-20. 

23. See, e.g., A. DouGi^s, Industrial Peacemaking (1962) (describing events 
at the negotiating table and beyond, and providing an update on the mediation pro- 
ceedings between the Atlas Recording Machine Company and Local 89 at the OPQ 
International Union); E. Peters, Strategy and Tactics in Labor Negotiations 
(1955) (using examples and case materials drawn from the author's experience as a 
California labor conciliator to analyze the nature of industrial conflict). 

24. See ].\. HENDERSON, Creative Collective Bargaining (J.J. Healy ed. 
1965); B.M. Selekman, S.K. Selekman & S.H. Fuller, Proble.ms in Labor Re- 
latio.ns (1950). 



417 

1983-84] Negotiations Alternative 1429 

cern in the universe of all negotiations. First, parties or organizations 
expect to continue to be engaged and to interact over a future period. 
Thus, the direct sale/purchase of a house between individuals who 
are unlikely to have any interaction in the future ever again or a 
transaction by a visitor to a garage sale are a species of negotiations 
excluded from these principles. In the negotiations under considera- 
tion in this article, events during negotiations, in the agreement-mak- 
ing process, or in the breakdown of negotiations, are likely to be 
significant to the performance of the parties following negotiations. 
Second, the negotiators represent organizations or groups within 
which there are important differences in preferences among the con- 
stituent members. These relative preferences for bargaining objec- 
tives may even shift during the course of negotiations, particularly 
when the negotiations are protracted. The parties to our negotiations 
are not monolithic. Third, the negotiators are concerned with more 
than a single issue, or with one that can be decomposed into more 
than one subissue. Thus, whenever money is an issue, there is the 
issue of effective dates of any change in money. Compensation typi- 
cally has a variety of dimensions. While one issue may be more signif- 
icant to one party, as compared to others, I have yet to meet a real 
single issue dispute, recognizing that issues typically are decomposed 
into a variety of dimensions, or components. 

The framework for analysis of negotiations outlined in the next 
section may provide some insight into these excluded classes of negoti- 
ations, but that is not the present primary purpose. 

Labor-management negotiations in the United States are char- 
acterized by the three inclusions defined above, although few private 
negotiations are so precisely specified by public policy. The labor or- 
ganization is certified by law as the exclusive representative of the 
employees in a precisely defined job territory.^^ The management is 
clearly identified by law. The subjects over which the parties are or 
are not required to bargain are also defined by law. The obligation to 
bargain in good faith^^ has been defined by statute and case law in 
great detail. The labor organization has the obligation to represent 
all employees in the bargaining unit fairly and without discrimina- 
tion,2^ including discrimination against any minority group of em- 
ployees confronting a majority of employees. Negotiations are to 
begin a specified number of days before the expiration of the old 
agreement. Some methods of conflict in negotiations, for example, 

25. 29 U.S.C. § 159(a) (1982). 

26. Id. § 158(d). 

27. Id. § 158(b). 



418 

1430 ViLLANOVA Law Review [Vol. 29: p. 1421 

relating to a picket, a boycott or violence, are permitted by law while 
others are prohibited. ^^ 

III. Framework to Analyze Negotiations 

The central purpose of this article is to assist those who observe a 
negotiation through the press, second-hand accounts, or report of iso- 
lated events of negotiations to understand better direct negotiations 
and the role of associated mediation. 

No outsider can ever fully participate in an ongoing negotiation 
or a mediation process. This framework and statement of principles 
is designed to facilitate a keener intellectual appreciation of what is 
happening.29 Despite a spate of recent volumes that advertise that 
one can learn to "negotiate agreement without giving in" or "get the 
best out of bargaining," I am inclined to believe that the art of negoti- 
ations can only be learned by experience, and often hard experience. 
A framework for analysis may, however, provide a perspective on 
what happens in negotiation and reduce the learning time or, per- 
haps, the pain of experience. 

The framework presented below is not highly abstract or elegant. 
It does, however, reflect a first approximation of experience and anal- 
ysis of the roles of various negotiating parties in diverse settings. 

A. Internal Agreement 

Each group or organization that is party to negotiations to seek 
an agreement has diverse internal interests. Therefore, an internal 
consensus or formal approval by each party is required to permit the 
consummation of a negotiated agreement. Thus, in the instance of 
two parties, it takes three agreements to achieve one agreement: an 
agreement within each party as well as one across the table. In the 
instance of three parties, it takes four agreements to achieve one 
agreement. This simple proposition is a fundamental to agreement- 
making. 

The parties to negotiations, among continuing groups or organi- 

28. See, e.g., id. § 158(b). Subsection (b)(4)(ii)(B) of this section is intended to 
prohibit secondary picketing by a union involved in a dispute with a primary em- 
ployer, where the picketing forces a secondary employer to choose between keeping 
its customers or continuing to deal with the target of the worker's dissatisfaction. 
Kroger Co. v. NLRB, 947 F.2d 634, 637 (6th Cir. 1981). However, under 
§ 158(b)(4), informational picketing at a common work situs, such as picketing 
designed to advise the public that an employer pays wages that are lower than union 
wages, is lawful. Texas Distribs., Inc. v. Local Union No. 1005, 598 F.2d 393, 398 
(5th Cir. 1982) (interpreting 29 U.S.C. § 158(b)(4) (1982)). 

29. iV^-J.T. DuNLOP & J. Healy, Collective Bargaining: Principles and 
Cases 53-68 (1953). 



419 

1983-84] Negotiations Alternative 1431 

zations, are never a monolith. Attention to the conflicting interests 
and internal governance for negotiations is essential to observe per- 
ceptively agreement-making or to participate effectively in the pro- 
cess. A great deal of the negotiations process is devoted subtly to 
communications concerning internal priorities and reactions to vari- 
ous proposals and counterproposals. 

In the negotiations in 1975 over the five-year grain agreement 
between the Soviet Union and the United States, for instance, there 
were diverse interests within the United States. These diverse inter- 
ests were concerned with the volume of grain to be sold in 1975 and 
beyond, the urgency of reaching an accommodation, the conse- 
quences on domestic living costs, how to resolve a longshoremen's 
work stoppage and achieve the use of American tonnage in grain 
shipments, and the need to include in the document an agreement 
with the Soviets for oil purchases below the OPEC price. These di- 
vergent interests were in part reflected in the different agencies of the 
government. The Departments of State, Agriculture, Labor, Com- 
merce, OMB and the White House, among others, were all involved 
in making recommendations to the President on the positions in the 
negotiations. Although the United States negotiators may have had 
less hard information, it could be presumed there were some internal 
differences to be accommodated at some levels within even the Soviet 
government on questions of immediate needs, agricultural policies, 
storage capacity, shipping rate structure and oil prices.^^ In the end, 
the United States had to abandon any linkage to oil if it was to 
achieve an agreement and the Soviets were under pressure to reach a 
negotiated settlement if it were to secure the grain volume it sought. 
The grain agreement, and the related shipping agreement, required 
considerable internal accommodation and congruent internal posi- 
tions within each side — three agreements to achieve one formal 
agreement. 

The private collective bargaining process well illustrates the 
same principle. The negotiating proposals of a labor organization are 
ordinarily initially put together from the aspirations of a wide range 
of members and subsidiary groups; the management proposals are no 
different. The union comprises diverse interests. Younger workers 
may be more interested in health care, older workers in pension bene- 
fits and retired workers in adjusting pensions for increased living 

30. R.B. Porter, Presidential Decision Making: The Economic Policy 
Board 123-56 (1980). It appears that the Soviets were looking at other grain mar- 
kets, and some Russian officials did not like the publicity that the purchases would 
generate. Id. at 125 &. n.3. 



420 

1432 ViLLANOVA Law Review [Vol. 29: p. 1421 

costs. Workers in various departments or plants may place high pri- 
orities on local working conditions. Women or minorities may regard 
as their top priority new elements in an affirmative action program. 
Unemployed workers may be most concerned with supplemental un- 
employment benefits and the extension of health care benefits. In 
multi-company bargaining the marginal company employees may be 
concerned with job security and employment compared with a high 
priority for wage increases among higher profit companies, and so on. 
The collective bargaining and negotiations process requires the labor 
organization (and management) to assess these competing opportuni- 
ties and to seek a settlement, before or after a work stoppage with a 
"package" which is congruent with management's (the labor organi- 
zation's) internal acceptances. The negotiation process eliminates 
many of the initial aspirations of both sides and seeks mutually consis- 
tent items and magnitudes — three agreements to achieve the agree- 
ment ratified by the internal procedures of each party and made 
public. 

The diversity in management is evident most clearly in public 
sector negotiations where mayors, city councils or boards of 
selectmen, finance committees and personnel bodies may be at odds. 
These differences are exacerbated by partisan and personality rival- 
ries, and they materially complicate agreement-making and 
ratification. 3^ 

The emphasis on the internal diversity and complexity of each 
organization that is party to the negotiations suggests that each nego- 
tiator appreciate the informal governance of each side in order to un- 
derstand the proposals and counterproposals made in the 
negotiations. It is vital to sense the priorities sought by each side, and 
the severity of their opposition to proposals, in practice, rather than 
merely in formal positions or in public pronouncements. Each nego- 
tiator, and indeed mediator,^^ needs to be sensitive to the possibilities 
of putting together "packages" of items to constitute an acceptable 
settlement in view of the respective priorities and negative evalua- 
tions of particular proposals. Indeed, negotiations or mediation is 
often the art of putting together packages that recognize the true pri- 
orities on each side that will "sell" to both parties informally as well 

31. Sf^J. Brock, Bargaining Beyond Impasse: Joint Resolution of Pub- 
lic Sector Labor Disputes 144-49 (1982). Brock writes: "A personality conflict, 
even if it has little to do with the issues at hand, can be damaging to the bargaining 
relationship . . . and thus impede settlement." M at 147. 

32. i>^ W.E. Simkin, Mediation and the Dynamics of Collective Bar- 
gaining (1971). 



421 
1983-84] Negotiations Alternative 1433 

as in any formal ratification process. It takes three agreements to re- 
solve the dispute. 

B. The Initial Proposals 

In negotiations the initial proposals for an agreement by any 
party tend to be large or extreme relative to eventual settlement 
terms, except in the case of a very few negotiators. It is important for 
observers or negotiators to understand the reasons for such inflated 
proposals and the functions that large initial proposals play in the 
negotiations process. They should not be simply dismissed with 
moral indignation as unreasonable; they often reveal a great deal 
about the internal complex of the side making the proposals. 

Many initial proposals are large because they reflect the way 
they were put together, usually by simply assembling the aspirations 
of the divergent groups which comprise each party to the negotia- 
tions. In order to cut back or scale down proposals, it is essential to 
establish priorities among groups within the negotiating organiza- 
tions, as suggested in the first principle. While some culling of raw 
proposals may be made initially, the process of priority setting and 
scaling back proposals for one party or another is often an integral 
part of the bargaining process itself. 

Initial proposals may be extensive or large as a deliberate act on 
the part of negotiators to secure the reactions of the other side. At the 
outset it is not always clear which items or proposals may be of inter- 
est or be most acceptable to the other side or elements of the other 
side. A wide and diverse menu may permit explorations that other- 
wise may not take place. Some proposals are also planted for future 
years. John L. Lewis initially proposed the novel idea of royalty per 
ton of coal mined for health care of miners as a means to compel the 
diversified owners to study the approach seriously for the next 
negotiations.^^ 

When negotiations may be protracted or when the environment 
of the negotiations may be expected to change significantly, the initial 
proposals may be large to accomodate such changed circumstances. 
Parties are likely not to want to make proposals which may appear 
grossly inadequate to their constituencies after six months or a year of 
negotiations. Therefore, larger or more extreme initial proposals pro- 
tect the negotiations from drastic changes in circumstances. 

Initial proposals may be substantial to facilitate negotiations 

33. See D.F. Selvin, The Thundering Voice of John L. Lewis 193-220 
(1969) (outlining benefits achieved by Lewis as president of the UMW union). 



422 

1434 ViLLANOVA Law Review [Vol. 29: p. 1421 

strategy calling for the abandonment or reduction in some items in 
response to movement by the other party. If a negotiator has ad- 
vanced only a minimum or final position, it will not be possible to 
make concessions to see what effects such a change may have on the 
other party. The need to maneuver in negotiations also encourages 
large initial proposals. 

It was observed above that there are a few situations in which 
initial proposals for an agreement by a negotiator may be close to the 
final settlement. Such a strategy may be followed, in my experience, 
by a negotiator with very considerable authority and prestige so that 
there is credibility, and when there likely is strong support for the 
approach within the organization represented. The tactic has the ad- 
vantage that once it has been successfully established in a previous 
negotiation, it may contribute to its own success in future negotia- 
tions. But the tactic has very limited applicability. The tactic of 
take-it-or-leave-it from the beginning of negotiations is a dangerous 
ploy for all but the strongest and most prescient. The process of nego- 
tiating from large initial proposals to more reasonable ones is still the 
ordinary course of negotiations. 

C. The Art of Changing Positions 

Negotiations constitute the process by which authorized repre- 
sentatives from the different sides, starting from positions that are ini- 
tially apart, often far apart, change their positions to seek to achieve a 
procedural or substantive agreement. A procedural agreement would 
settle a dispute, for instance, by referral to arbitration or to some 
other tribunal for resolution. 

The change in the formal position of a party in negotiations is 
always accomplished with a certain amount of difficulty since a con- 
cession may be interpreted as a weakness and invite expectations for 
further yielding. Yet changes in positions by negotiators, ordinarily 
substantial changes, are required if the differences between the parties 
are to be narrowed and an agreement is to be achieved. But each 
apparent concession tends to create on the other side the impression 
of a willingness to yield further in continuing negotiations. If a nego- 
tiator has reduced (or raised) his offer ten cents an hour, the other 
side will argue that a further movement is appropriate to close the 
remaining gap between the parties on that issue. Moreover, an ex- 
plicit concession once made is almost impossible to withdraw as a 
practical rather than as a formal or legal matter. It should be no 
surprise that concessions from initial or previous proposals are often 
accompanied by the refrain, "This is our last offer" or "This is our 



423 



1983-84] Negotiations Alternative 1435 

last proposal" before some deadline or projected breakoff in 
negotiations. 

At the outset of negotiations, after the lists of formal proposals 
have been submitted, each negotiator is likely to enjoy the full sup- 
port of its organization, and there are sharp conflicts across the table. 
The positions are far apart and each side has a united constituency on 
rather extreme proposals. In the course of negotiations, as spokesmen 
change their positions and make concessions, more and more tension 
tends to arise within each group just as it may ease across the bargain- 
ing table. As each initial proposal is dropped or modified, internal 
support from additional constituencies may be lost. Indeed, it is a 
practical rule-of-thumb that as one is nearing agreement across the 
table, there is more difficulty within each side than between the lead- 
ing spokesmen across the table. Each principal negotiator is often as 
much preoccupied with handling the internal conflicts and shaping 
proposals to satisfy the internal necessities as in handling controversy 
with the opposing negotiator. Changing positions creates internal 
tensions, making internal agreement more difficult. 

The way in which negotiators for organizations change their po- 
sitions in order to move toward a settlement is an art form involving 
considerable style in handling tensions internally as well as across the 
table. In my experience the characteristic which most distinctively 
separates experienced from inexperienced negotiators is the way in 
which they are able to eff*ectuate changes in positions without creat- 
ing expectations of further concessions and the way they can "read" 
suggestions of the other side for possible changes in previous positions. 
These differences in talents and skills do make a difference in the sub- 
stantive outcomes of negotiations. A related element, absolutely es- 
sential to the art of changing positions, is the capacity to listen 
perceptively and to read between the lines. Timing or mutual under- 
standing of the moods on the two sides is likewise critical to effective 
negotiating. 

In the early stages of negotiations, it would not be unusual for a 
change in position to be reflected by the withdrawal or scratching of 
some items from the agenda of one or both sides. But as the negotia- 
tions proceed the discussions are often centered on various "packages" 
of proposals. While a change in position may be reflected in a modifi- 
cation in the magnitudes of the items in the "package," a change may 
also be signaled by discussing a "package" modified to exclude some 
items or to add some items more desirable to the other side. These 
combinations may not be presented as formal offers or modifications 
in positions but only as different "packages" for exploration. Only 



424 
1436 ViLLANOVA Law Review [Vol. 29: p. 1421 

later may a formal change in position or a withdrawal of an item be 
conceded. 

There is often considerable ambiguity over the status of various 
package proposals and their composition. At a given stage of the ne- 
gotiations it may be quite uncertain what is in dispute and what, if 
anything, has been agreed upon. This is due to an axiom of negotia- 
tions prov